The following is the formula for calculating a marginal utility.
Marginal Utility Definition
Marginal utility is a measure of the change in satisfaction (or utility) of an object as more units of that object are consumed. For example, a persons satisfaction is likely to increase if they are eating 2 pieces of candy over 1. If that same person were to eat 10 pieces instead, their satisfaction may go down because they feel sick. This relationship is the marginal utility, and the formula above measures this value as an average.
The following is an example problem of how to calculate a marginal utility.
- First, we must set up problem. Let’s take a look at a group of people buying and using smartphones.
- Next, we ask a group of people on a scale of 1-10 how happy they are when they buy 1 phone for use. After taking the survey we find on average people scored a 7/10 satisfaction with 1 phone.
- Next, we ask the same group how happy they would be if they had to buy 2 phones. Unanimously, they said they would be less happy having to buy 2 phones and scored it 3/10. This seems obvious because most people don’t need more than one phone and don’t want to spend money on a second.
- With the information above we can calculate a marginal utility of (2-1)/(3-7) = -1/2. This means the marginal utility is negative and there is a negative relationship between increased consumption and increased satisfaction.
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