how to calculate marginal utility
you can calculate marginal utility by dividing the change in total utility tu by the change in number of units q change in total utility is found by subtracting the previous total utility from the current total utility tu2 tu1 change in number of units is found by subtracting the previous number of units from the current number of units q2 q1 applications of marginal utilitymarginal utility is used to make a variety of economic decisions by governments businesses and consumers consumers seek out products with higher marginal utility because their satisfaction stays high with each additional unit purchased they are more likely to purchase more they are also more likely to buy similar products from the same company expecting them to have a similarly high level of marginal utility higher marginal utility often leads to greater customer satisfaction because consumers feel they are getting their money s worth this can lead to brand loyalty over time as well as word of mouth recommendations products that offer a higher level of satisfaction over time and after the first time they are used offer a higher level of marginal utility this makes them more valuable to customers so they can be priced higher for greater profits this can also serve as a guide for businesses to create better products and increase customer satisfaction by focusing on products that offer higher marginal utility marginal utility can also guide businesses when deciding which products to innovate or upgrade a product or service that already has a high level of marginal utility becomes even more valuable when it is improved allowing businesses to continue increasing the price over time or for newer models for example if a car manufacturer has an suv that is already a top seller they can create trim levels with additional features or upgrades because the original version is already popular with a high marginal utility customers are more likely to pay the increased price for an even more premium version the law of diminishing marginal utility is often used to justify progressive taxes the idea is that higher taxes cause less loss of utility for someone with a higher income in this case everyone gets diminishing marginal utility from money suppose that the government must raise 10 000 from each person to pay for its expenses if the average income is 60 000 before taxes then the average person would make 50 000 after taxes and have a reasonable standard of living however asking people making only 10 000 to give it all up to the government would be unfair and demand a far greater sacrifice that is why poll taxes which require everyone to pay an equal amount tend to be unpopular also a flat tax without individual exemptions that required everyone to pay the same percentage would impact those with less income more because of marginal utility someone making 15 000 per year would be taxed into poverty by a 33 tax while someone making 60 000 would still have about 40 000 