MARGINAL UTILITY ANALYSIS

MARGINAL UTILITY ANALYSIS

This theory which is formulated by Alfred Marshall, a British economist, seeks to explain how a consumer spends his income on diuerent goods and services so as to attain maximum satisfaction. This theory is based on certain assumptions. But before stating the assumptions, let us understand the meaning of total utility and marginal utility.

Total utility: Assuming that utility is measurable and additive, total utility may be defined as the sum of utility derived from diuerent units of a commodity consumed by a consumer. Total utility is the sum of marginal utilities derived from the consumption of diuerent units i.e.

TU= MU1+MU2+.....+MUn

Where MU1, MU2,.....,MUn etc are marginal utilities of the successive units of a commodity.

Marginal utility: It is the addition made to total utility by the consumption of an additional unit of a commodity. In other words, it is the utility derived from the marginal or one additional unit consumed or possessed by the individual.

Marginal utility = the addition made to the total utility by the addition of consumption of one more unit of a commodity.

Symbolically,
                                 MUn = TUn - TUn-1
Where, 

MUn is the marginal utility of the nth unit,

 TUn is the total utility of the nth unit, and

 TUn-1 is the total utility of the (n-1)th unit.

Dhananjay sir, [23.02.18 21:26]

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