1. Diminishing Marginal Utility
Consumer Optimum
A choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income.
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2. Diminishing Marginal Utility
(1) (2) (3) (4)
Total Utility Marginal Utility
Videos of Videos Marginal Utility per Dollar Spent
per per Period (utils) (MUv / Pv)
Period (utils) MUv (price = $5)
0 0.0
1 50.0
2 95.0
50.0
45.0
40.0
36.5
28.5
10.0
9.0
8.0
7.3
5.7
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3. Diminishing Marginal Utility
(5) (6) (7) (8)
Total Utility Marginal Utility
Hamburgers of Hamburgers Marginal Utility per Dollar Spent
per per Period (utils) (MUh / Ph)
Period (utils) MUh (price = $3)
0 0
1 25
2 47
3 65
4 80
5 89 25 22 18 15 9
8.3
7.3
6.0
5.0
3.0
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4. Diminishing Marginal Utility
Marginal Utility Marginal Utility
Items per Dollar per Dollar
per Spent (Video) Spent (Hamburger)
Period (price = $5) (price = $3)
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5. Steps to Consumer Optimum
Choices
Videos
Hamburgers
Purchase Unit (MUV /PV) Unit (Muh /Ph)
1 First First 8.3
2 Second First 8.3
3 Third First 8.3
4 Third Second 7.3
5 Fourth Second 7.3
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6. Steps to Consumer Optimum
Buying Decision Remaining Income
First video $26 - $5 = $21
Second video $21 - $5 = $16
First hamburger $16 - $3 = $13
Third video $13 - $5 = $ 8
Fourth video and $ 8 - $5 = $ 3
second hamburger $ 3 - $3 = $ 0
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7. Diminishing Marginal Utility
A Little Math
The Rule of Equal Marginal Utilities per Dollar Spent
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