Question

Evaluate your margin al and total utility of consuming a good or service and from your analysis, what do you think is more important to determine your consumption? You will want to examine a time where you experienced diminishing marginal returns with your consumption in the last week and explain how you determine when diminishing marginal returns set it. Please make sure to use the terms from this unit in your analysis.

Answer 1

Answer

Total and marginal utility concepts are very important when we purchase a good or services. Total utility refers the total satisfaction that we derive from the consumption of goods or services.On the other hand, marginal utility refers a marginal change in utility due to change in one extra unit consumption of goods and services.

At the initial stages of consumption of any goods or services, the total utility or total satisfaction gradually rises, it then reaches its maximum and then the total utility gradually declines with further consumption. On the other hand, the marginal utility gradually declines with more and more extra unit of consumption, it reaches zero when total utility is maximum and then the marginal utility becomes negative with more units of consumption.

If the good in question is X, then total utility(TU) is

TU_x=TU₁+TU₂+TU₃+...........+TU_n

TU₁ is the total utility for the first unit of consumption of good X. Similarly TU_n is the utility for the n^th unit of consumption of good X.

Marginal Utility (MU_x) = d(TU_x)/dx

i.e., MU_x is the change in total utility of X (dTU_x) due to one extra unit of consumption of X(dx).

Total and Marginal Utility

Unit consumption of good X	Total Utility	Marginal Utility
1	20	20
2	38	18
3	50	12
4	50	0
5	48	-2
6	39	-9

The above figure shows the total utility and the marginal utility curves.of consumption of good X.In this diagram, total and marginal utility are measured on the vertical axis and the consumption of good X is measured on the horizontal axis.The red inverse 'U' curve shows the total utility and the green line Mu_x shows the marginal utility. Total utility increases until consumption of 3 units. There is no change in total utility for an extra unit of consumption after 3 (3+1=4). So utility is maximum at 4 units of consumption, where marginal utility is zero(0).After that for an extra unit of consumption, marginal utility becomes negative.

The marginal utility is more important to determine the consumption. Again the price that the consumer wants to pay for an extra unit purchase, it also depends on the marginal utility he/she gets from an extra unit.

Utility can be ordinal and cardinal. In ordinal utility, utility is measured order-wise. In cardinal utility, utility is measured in terms of number. The unit of measurement of utility is called 'util'. Diminishing marginal returns in utility means that as more and more number of units of goods and services are available to the consumer, his/her satisfaction for an unit of consumption gradually declines. It states that for all the pays for an extra unit of consumption of goods and services, the returns from it gradually declines. The marginal utility is maximum for the first unit of consumption and then it diminishes for all the extra unit of consumption. The diminishing marginal returns explains that over time, as more and more number of goods are available, its utility declines.If the consumption in last week experienced a diminishing marginal returns, it means the value of the goods or services were much more in last week than it is at present. The marginal utility declines over time.
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