How to Calculate Marginal Utility and Total Utility
Marginal utility and total utility are two essential concepts in economics that help us understand how consumers make decisions about what to buy and how much to consume. Marginal utility is the additional satisfaction or benefit that a consumer gets from consuming one more unit of a good or service, while total utility is the overall satisfaction or benefit that a consumer derives from consuming a certain quantity of a good or service.
In this article, we will explain how to calculate marginal utility and total utility, and how these concepts can be applied in everyday life. We will also discuss the law of diminishing marginal utility, which states that as a consumer consumes more units of a good or service, the marginal utility of each additional unit decreases.
Step 1: Define Marginal Utility
Marginal utility is the change in total utility that results from consuming an additional unit of a good or service. To calculate marginal utility, you need to measure the change in total utility and divide it by the change in quantity consumed.
Step 2: Calculate Marginal Utility
To calculate marginal utility, use the following formula: Marginal Utility = Change in Total Utility ÷ Change in Quantity Consumed. For example, if consuming one more apple increases a person’s total utility from 20 to 22, the marginal utility of the apple is 2 (i.e. 22 - 20 ÷ 1).
Step 3: Define Total Utility
Total utility is the sum of the marginal utilities of each unit consumed up to that point. It represents the overall satisfaction that a consumer derives from consuming a particular amount of a good or service.
Step 4: Calculate Total Utility
To calculate total utility, add up the marginal utilities of each unit consumed up to that point. For example, if consuming one apple gives a person a total utility of 20 and consuming another apple gives a person a total utility of 22, the total utility of two apples is 42 (i.e. 20 + 22).
Step 5: Understand the Law of Diminishing Marginal Utility
The law of diminishing marginal utility states that as a consumer consumes more units of a good or service, the marginal utility of each additional unit decreases. This means that the more of a good or service a consumer consumes, the less satisfaction or benefit they will get from consuming each additional unit.
Step 6: Apply Marginal Utility and Total Utility in Real Life
Understanding the concepts of marginal utility and total utility can be very useful in everyday life. For example, it can help you make better decisions about how much of a good or service to consume. If the marginal utility of an additional unit of a good or service is negative, it means that consuming more of it will actually decrease your overall satisfaction. On the other hand, if the marginal utility of an additional unit is positive, it means that consuming more of it will increase your overall satisfaction.
Step 7: Use Marginal Utility to Determine Optimal Consumption
To determine the optimal consumption of a good or service, you should continue consuming it until the marginal utility of the last unit consumed is equal to its price. This is because at this point, the additional satisfaction or benefit you would get from consuming another unit would be equal to the cost of that unit, and consuming more would not be worth it.
Step 8: Consider Other Factors
While marginal utility and total utility are important concepts in economics, they do not take into account other factors that can influence a consumer’s behavior. For example, a consumer may choose to consume a certain good or service even if its marginal utility is negative because it satisfies a particular need or desire, or because it is cheaper than other alternatives.
Step 9: Calculate Marginal Utility for Multiple Goods
Marginal utility can also be calculated for multiple goods. To do this, you need to calculate the marginal utility of each good and compare them. For example, if a person has a total utility of 40 from consuming two apples and a total utility of 30 from consuming three bananas, the marginal utility of the third banana is -10 (i.e. 30 - 40 ÷ 1). This means that the person would be better off consuming another apple instead of another banana.
Step 10: Conclusion
In conclusion, understanding marginal utility and total utility is essential for making informed decisions about consumption. By calculating marginal utility and total utility, you can determine the optimal level of consumption for a particular good or service, and avoid consuming more than what is necessary. However, it is important to keep in mind that there are other factors that can influence a consumer’s behavior, and that these concepts should be used in conjunction with other tools and strategies.
