Answer to Question #131961 in Microeconomics for kirti

Question

. How can we use marginal utility schedule and marginal utility curve to determine how many units of commodity an individual will consume? Please take a hypothetical example to construct a marginal utility schedule. Use this schedule to construct marginal utility curve and show your analysis graphically too. Using same hypothetical example, find consumer plus derived in this situation.

Answer 1

Marginal utility theory examines the increase in consumer satisfaction gained from consuming an extra unit of a good. Utility is a concept that the purchase of products and service gives people a certain degree of satisfaction / happiness / utility. The value of consuming an extra unit is marginal utility.

The utility is not always constant but diminishes and thus we get the diminishing marginal utility. Taking an example of a chocolate cake, the following is the table of the marginal utility;

Quantity                            Total Utility                       Marginal Utility

1                                          120                                     120

2                                          210                                     90

3                                          270                                     60

4                                          300                                     30

5                                          300                                     0

6                                          270                                     -30

7                                          240                                     -60

In this example, the total utility at 300 is actually maximized after only four pieces of the cake. This means therefore that if you take the 6^th piece, it has negative effect on you as there is negative utility.