Using the analysis ,explain how much units of a commodity should a consumer buy at the given price
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Dear Student,
Total utility refers to total satisfaction that a consumer derives from consumption of certain units of a commodity
Marginal utility refers to the additional satisfaction which a consumer derives from consumption of an additional unit of a commodity.
Both TU and MU are related in following ways:
1. As long as MU is positive, TU increases but at declining rate.
2. When MU=0, than TU is maximum
3. When MU becomes negative, TU declines.
It means a consumer will be at highest point of satisfaction when MU derived from that commodity becomes 0.
For example:
Units of commodity X 0 1 2 3 4 5 6
Total Utility 0 10 18 23 26 26 24
Marginal Utility 0 10 8 5 3 0 (-2)
In above case, consumer will buy 5 units of commodity X, as here TU is maximum and MU is zero. beyond this TU will fall. Therefore, by buying 5 units of commodity X, consumer will get maximum utility.
Regards
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