Question

Fill in the following table on the total and marginal utilities of a product A. Also answer the questions.

Units of product A	Total utility	Marginal utility
0	0
1	20	_____
2	35	_____
3	_____	10
4	_____	5
5	_____	0
6	45	_____
7	35	_____
8	_____	−15

(a) Graph both the total utility and marginal utility curves together on the same graph. (Take a picture of It and insert the picture in the right box.

(b) Explain the shape of both of the curves.

(c)        Identify the point where utility is maximized on both curves. Discuss the reasoning behind each value.

Answer 1

Answer;

a).

Utility is defined as the wants satisfying power of a commodity. Marginal utility is satisfaction gained from an extra unit consumed.

Margunal utility (MU)= Change in total utility / Change in unit consumed

Units of product A	Total utility	Marginal utility
0	0	-
1	20	(20-0)/(2-1)=20
2	35	15
3	45	10
4	50	5
5	50	0
6	45	-5
7	35	-10
8	20	-15

b). The total utility curve upward sloping upto 4th unit and then it slope downwards from 5th unit.

The marginal utility curve is downward sloping.

c). The Total utility is maximised at the point where marginal utility is zero (quantity 5 or 6), The total utility starts to fall when marginal utility is negative.

This shows the law of diminishing marginal utility of consumption. If buy too many goods, it start to get negative utility and the total satisfaction starts to decline.