Total utility formula and total utility curve

 1)






Total Utility is the sum total utility derived from the consumption of all the units of a commodity.

For example: If 2 units of a commodity are consumed and 1st unit yields satisfaction of 10 utils, while the 2nd unit yields satisfaction of 9 utils, then Total Utility ( TU) = 10+9

                                                                                   = 19 utils (or 19 units of utility).


2) Relationship between Total Utility and Marginal Utility is explained with the help of total utility curve


1) TU increases so long as MU is +ve.
2) TU is maximum when MU is 0.
3) TU starts declining when MU is -ve.
4) Decreasing MU implies that TU increases at a decreasing rate (MU is the rate of TU).

Diminishing MU implies that TU will increase only at diminishing rate. Because, MU implies addition to TU; if MU declines, addition to TU also declines. As we saw in all our previous examples that MU decreases as more and more units of a commodity is consumed. This diminishing MU implies that TU is increasing only at a diminishing rate.



Comments

Post a Comment

Popular posts from this blog

Some important Questions on Single Commodity Approach

Image
  1) Question 1 2) Question 2 3) Question 3 4) Question 4 Or we could have done by the method, where we checked  MU ₓ / Pₓ = MUₘ , i.e., the rupee worth of satisfaction the consumer actually gets (MU ₓ / Pₓ)  = to the rupee worth of satisfaction he expects (MU ₘ) . The answer is 12/4 (3)  = 3, which is same as the above method. 
Read more

cardinal and ordinal utility

Image
  1) Cardinal measurement of utility means that utility (satisfaction) can be measured in terms of cardinal numbers or units like 1,2 and 3. And the unit of measurement is called utils. Ordinal measurement of utility means that utility (satisfaction) can only be ranked (high or low); it cannot be expressed in terms of units like 1,2 and 3.
Read more

Law of Diminishing Marginal utility/ Fundamental Law of Satisfaction / Fundamental psychological law

Image
  1)  Law of Diminishing marginal utility states that as more and more of standard units of a commodity are continuously consumed, marginal utility derived from every additional unit must decline. Two basic assumptions are: 1) Only standard units of the commodity are consumed. Like, a cup of tea (not a spoon of tea). 2) Consumption of the commodity is continuous. Not that one unit is consumed now, and the other in the evening or tomorrow. 2) Some more assumptions:
Read more