Problem 8 Is it possible for total utility... [FREE SOLUTION]

Chapter 6: Problem 8

Is it possible for total utility to increase while marginal utility diminishes? Explain.

Short Answer

Expert verified

Yes, it is indeed possible for total utility to increase while marginal utility diminishes. This is due to the law of diminishing marginal utility, which states that as a consumer consumes more of a product, the additional satisfaction (marginal utility) they derive from each additional unit begins to decrease. However, as long as this marginal utility remains positive, the total utility (cumulative satisfaction from consumption) can continue to grow. So, even if the additional satisfaction from each successive unit lessens, as long as it adds positively to the total satisfaction, the total utility will still increase. An example would be eating pizza slices. The satisfaction derived from each additional slice may lessen, but the total satisfaction received (total utility) continues to increase as long as the additional slice consumed provides some level of satisfaction.

Step by step solution

Understanding Total Utility and Marginal Utility

Total utility is the total satisfaction that a consumer derives from consuming a certain quantity of a good or service. Marginal utility, on the other hand, is the additional satisfaction that a consumer gets from consuming an additional unit of a good or service.

Law of diminishing marginal utility

According to the law of diminishing marginal utility, as a person consumes more of a good or service, the satisfaction obtained from each additional unit consumed will eventually start to decrease. It means that marginal utility tends to decrease as the quantity consumed increases.

Total utility increasing while marginal utility diminishes

Although marginal utility decreases as more units of a good or service are consumed, total utility can still be increasing. It happens as long as the marginal utility is positive, even if it is getting smaller. It is because the consumer still derives some additional satisfaction from consuming more units, which adds to the total utility.

Example

Let's take an example to further illustrate this concept. Consider a person consuming slices of pizza. The utility they derive from each additional slice is as follows: 1st slice: Marginal utility = 10 2nd slice: Marginal utility = 8 3rd slice: Marginal utility = 6 4th slice: Marginal utility = 4 The marginal utility is decreasing with each additional slice consumed, but it is still positive. Now let's look at the total utility: 1st slice: Total utility = 10 2nd slice: Total utility = 10 + 8 = 18 3rd slice: Total utility = 18 + 6 = 24 4th slice: Total utility = 24 + 4 = 28 As you can see, total utility is still increasing even though the marginal utility is diminishing with each slice consumed. The total utility increases as long as the marginal utility is positive, even if it is getting smaller with each additional unit consumed. So, yes, it is possible for total utility to increase while marginal utility diminishes, as long as marginal utility remains positive. This principle reflects the law of diminishing marginal utility, which states that the additional satisfaction derived from consuming one more unit of a good or service starts to decrease after a certain point, even though the total satisfaction derived keeps on increasing.