Question

Explain the concept of marginal utility with the help of an example.

Answer 1

Marginal utility refers to the net addition made to the total utility by consuming one more unit (additional unit) of a commodity.

If total utility derived from the consumption of n units of a commodity is denoted by TU and total utility derived from the consumption of n + 1 units is TU_{n + 1} then mu = TU_{n + 1} – TU_n.

The concept of marginal utility can be explained with the help of an example.

When a consumer consumes one roti, he gets total utility equal to 10 utils. 

By consuming second roti total utility becomes 18 utils i.e. 10 + 8.

Therefore, marginal utility of the second roti is 8, i.e. 8 = 18 – 10.