Question

Explain the relation between total utility and marginal utility.

Answer 1

Marginal utility is the change in total utility from consuming one additional unit. \[ \mathrm{MU}_n=\mathrm{TU}_n-\mathrm{TU}_{n-1} \]

• If MU is positive, TU increases; if MU diminishes, TU increases at a decreasing rate.
• When MU is zero, TU is at its maximum (point of satiety).
• When MU is negative, TU decreases.