relationship between tu and mu

Relation between Total Utility and Marginal Utility:

There is a close relationship between Total Utility and Marginal Utility. As there is increase in the unit of a particular commodity, the Marginal Utility goes on diminishing and Total Utility goes on increasing. Total Utility goes on increasing up to that extent till the Marginal Utility becomes Zero. When Marginal Utility is zero Total Utility is maximum.After Zero,Marginal Utility comes to negative and the result is that Total Utility starts reducing.
Relationship between Total Utility and Marginal Utility can be stated as follows:
1) Marginal Utility goes on diminishing with the consumption of every additional unit.
(2) Total Utility goes on increasing with the consumption of every additional unit but at a diminishing rate.
(3) Marginal Utility is equal to the increase in the Total Utility. Total Utility is the sum total of the Marginal Utilities derived from all the units consumed.
(4) When Marginal Utility becomes 0, total utility does not increase.
(5) When Marginal Utility becomes negative, Total Utility decreases.
(6) Increase in Total Utility depends on Marginal Utility.
(7) Since Marginal Utility diminishes, Total Utility increases at a diminishing rate.
(8) When Marginal Utility is Zero, Total Utility is maximum.
(9) When Marginal Utility is negative, Total Utility declines.
Algebraically,
MUN = TUN —TUN-1
Diagram and table to be used as drawn in notebook.

Comments

Post a Comment

Popular posts from this blog

Cardinal Utility Analysis

 The neo-classical utility analysis refers to the theory of consumer behaviour as built by Marshall, Pigou and others. This is based on the CARDINAL MEASUREMENT OF UTILITY, which assumes that utility is measurable and additive. Utility is measured in hypothetical units which is called "UTILS". If a consumer imagines that 1 mango has 8 utils and an apple has 4 utils, it implies that the utility of 1mango is twice that of an apple. ASSUMPTIONS This analysis is based on a set of assumptions which are as follows:- 1) This analysis is based on cardinal concept. 2) Utility is measurable and additive. 3) The consumer is rational who measures, calculates, chooses and compares the utilities of different units of the various commodities and aims at the maximisation of utility. 4) He has full knowledge of the availability of  commodities and their technical qualities. 5) He possess perfect knowledge of the choice of commodities open to him and his choices are certain. 6) He knows the ex...
Read more

measurement of utility

Image
Can Utility  be Measured? Utility is a psychological concept. This is different for different people. Therefore, it cannot be measured directly. Professor Marshall has said that “Utility can be measured and its measuring rod is ‘money. The price which we are ready to pay for an article is practically its price. Nobody will be prepared to pay more than the utility which we derive from the article. For example: If I am ready to pay Rs. 1500 for a watch and Rs. 2,000 for a Radio. Then I can say that I derive utility from that watch up to the value of Rs. 1500; and from Radio up to the value of Rs. 2,000. “The inference which we can draw from the above example is that the price which we pay for any article is the utility which we derive from that article.” But Prof. Hicks, Allen and Pareto have not supported Marshall’s view of measuring utility. Measurement of Utility Measurement of a utility helps in analyzing the demand behavior of a customer. It is measured in two ways ...
Read more