Question

what is the relationship between total utility and marginal utility? Explain why total utility is maximized and when maginal utility is equal to zero

Answer 1

Total utility is the utility obtained by consuming all the units of a commodity. Marginal utility is the utility obtained by consuming an additional unit of a commodity. In other words, it is the additions made to total utility by having an additional unit of a commodity.

Marginal utility is given by the formula: MU(n) = TU(n) - TU(n-1).

a) As long as total utility is increasing, MU is decreasing.

b) When TU reaches it maximum point, MU reaches/ touches the x-axis i.e. MU = 0 at this point.

c) When TU starts falling, MU becomes negative.

Total utility is maximized when MU = 0 based on the law of diminishing marginal utility which says that as more and more of a commodity is consumed, the level of satisfaction derived from each successive unit falls.