Marginal Utility – Business Economics – BBA

Aug 24, 2021

Marginal Utility

It is defined as the utility derived from the marginal unit consumed. It may also be defined as the addition to the utility resulting from the consumption (or accumulation) of one additional unit. Marginal utility (MU) thus refers to the change in the total utility obtained from the consumption of additional unit of a commodity. It may be expressed as-

MU=TUn   – TUn-1

Marginal utility can be:

1. Positive Marginal Utility: If by consuming additional units of commodity, total utility goes on increasing, then marginal utility of these units will be positive.
2. Zero Marginal Utility: If the consumption of additional unit of commodity causes no change in the total utility, it means the marginal utility of additional unit is zero.
3. Negative Marginal Utility:If the consumption of an additional unit of a commodity causes fall in total utility, it means the marginal utility is negative.

Relation between Total Utility and Marginal Utility:

Total utility is the summation of the marginal utilities of different units of a commodity.

• When MU is +ve, TU increases.
• When MU is 0, TU is max.(Point of Satiety)
• When MU is -ve, TU decreases.

Table shows that:

a) As more and more units of commodity are consumed, the marginal utility derived from each successive unit goes on diminishing. But the total utility increases up to a limit

b) Marginal utility of the first four units being positive,the total utility goes onincreasin Thus as long as the marginal utility of the commodity remains  positive, total utility goes on increasing.

c) Marginal utility of the fifth unit is zero. In this situation total utility (20) will be This situation also represents pointof saturation.

d) Marginal utility of the sixth unit is negati As aresult of it, total utility of six units of the commodity falls from 20 to 18 units.