Question

he table below shows the total utility that Jerry gains from drinking coffee at Starbucks.

Cups of

coffee 1 2 3 4 5

Total

Utility, $ 1.50 2.70 3.60 3.60 2.00

Does this example illustrate the principle of diminishing marginal utility? Explain.

Answer 1

Marginal utility refers to the change in total utility due to the consumption of one additional unit. According to the law of diminishing marginal utility, everything remaining constant, when more units of the same good is consumed, the marginal utility keeps decreasing.

Let us calculate the marginal utilities of each successive cup of coffee:

Cup of Coffee	Total Utility	Marginal Utility
1	1.50	1.50
2	2.70	2.70 – 1.50 = 1.20
3	3.60	3.60 – 2.70 = 0.90
4	3.60	3.60 – 3.60 = 0
5	2.00	2.00 – 3.60 = -1.60

The table shows that marginal utility keeps decreasing when more cups of coffee is consumed. So, this example illustrates the law of diminishing marginal utility.