Marginal utility is the extra satisfaction or benefit a person receives from consuming one additional unit of a product or service, while keeping all other factors the same.
Key points:
- It measures the change in total satisfaction caused by consuming one more unit.
- Usually, as you consume more of a specific item, the marginal utility decreases because each new unit provides less value than the one before it.
- If marginal utility is positive, your total satisfaction grows. If it is zero, you have reached maximum satisfaction. If it is negative, your total satisfaction drops.
Formula:
Marginal Utility (MU) = Change in total utility / Change in quantity consumed
Relationship between Total Utility (TU) and Marginal Utility (MU):
- If MU is greater than 0, TU is increasing.
- If MU is 0, TU is at its highest point.
- If MU is less than 0, TU is decreasing.
Mathematical note:
Marginal utility represents the rate of change in total utility. It reaches zero exactly when total utility is at its peak.