Marginal Utility Formula
Calculate marginal utility using MU = ΔTU/ΔQ.
Learn how to measure the additional satisfaction from consuming one more unit.
The Formula
Marginal utility measures the additional satisfaction (utility) a consumer gains from consuming one more unit of a good or service. It is a cornerstone of microeconomic theory and explains why people make the purchasing decisions they do.
The law of diminishing marginal utility states that as you consume more of something, each additional unit provides less satisfaction. The first slice of pizza is wonderful. The fifth slice is much less exciting.
This concept directly influences demand curves. As marginal utility decreases, consumers are only willing to pay lower prices for additional units — which is why demand curves slope downward.
Variables
| Symbol | Meaning | Unit |
|---|---|---|
| MU | Marginal utility — extra satisfaction per additional unit | Utils (a theoretical unit) |
| ΔTU | Change in total utility | Utils |
| ΔQ | Change in quantity consumed | Units of the good |
Utility Maximization Rule
A rational consumer maximizes satisfaction when the marginal utility per dollar is equal across all goods:
This is called the equimarginal principle. If one good offers more utility per dollar than another, the consumer should shift spending toward it.
Example 1
A consumer's total utility from cups of coffee: 1 cup = 20 utils, 2 cups = 35 utils, 3 cups = 45 utils. What is the marginal utility of the 3rd cup?
ΔTU = TU(3) − TU(2) = 45 − 35 = 10 utils
ΔQ = 1 cup
MU = 10 / 1
MU = 10 utils per cup (notice diminishing returns: 1st cup = 20, 2nd = 15, 3rd = 10)
Example 2
A consumer has $12 to spend. Good A costs $2 (MU = 10 utils). Good B costs $3 (MU = 12 utils). Which gives more satisfaction per dollar?
MU per dollar for Good A: 10 / 2 = 5 utils per dollar
MU per dollar for Good B: 12 / 3 = 4 utils per dollar
Good A provides 5 utils per dollar vs. 4 for Good B — the consumer should buy more of Good A first
When to Use It
- Analyzing consumer behavior and purchasing decisions
- Understanding why demand curves slope downward
- Optimal resource allocation with a fixed budget
- Pricing strategy — understanding willingness to pay
- Welfare economics — measuring consumer surplus