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How To Calculate Marginal Utility (With Examples)

By Chris Kolmar
Feb. 13, 2023
Last Modified and Fact Checked on: Jan. 22, 2026

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How To Calculate Marginal Utility (With Examples)

Summary. To calculate marginal utility, subtract the total utility before adding new units from the total utility after, then divide by the change in the number of units. This reveals the change in satisfaction experienced by a consumer as additional units of a good or service are consumed.

When consumers purchase a good or service, they assign a value based on the satisfaction it provides. This value is referred to as “utility.” It represents the satisfaction or pleasure derived from consumption.

Utility is fundamental in consumer theory, which examines how individuals allocate their resources based on income, budget constraints, needs, preferences, and desires.

Key Takeaways:

  • Utility reflects a consumer’s willingness to pay. Marginal utility indicates how this willingness changes when new goods or services are introduced.

  • Utility is often expressed in terms of “utils.”

  • Marginal utility is calculated as “Change In Total Utility” divided by “Change In Units.”

  • Understanding marginal utility assists businesses in predicting consumer behavior.

How To Calculate Marginal Utility (With Examples)

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What Is Utility?

Utility indicates a consumer’s willingness to spend. This is essential knowledge for economists and business analysts who use utility to forecast market trends.

As a consumer, understanding utility helps you make informed spending decisions. It empowers you to navigate the economy effectively, guiding you toward optimal choices, whether you’re a market analyst, a consultant, or a business owner procuring goods and services.

Utility Quantified as Utils

Utility can be measured using a unit called “utils.” For instance, at a restaurant, you might assign a utility value of four utils to one glass of soda, indicating the satisfaction it provides.

You can also assign a monetary value to utility. This involves estimating how much you would be willing to pay for a unit, which reflects its perceived value to you, irrespective of the market price.

If your calculated utility value is lower than the actual price, you likely won’t purchase the item, as it exceeds your perceived worth. This principle is integral to the demand curve in price determination through supply and demand dynamics.

What Is Total Utility?

Total utility represents the cumulative satisfaction derived from consuming a specific quantity of a good or service. For instance, if the utility of the first glass of soda is four utils, the enjoyment from two sodas might increase to six utils, and from three sodas to seven utils.

However, consumption of a fourth soda might result in a decrease in satisfaction to four utils again due to overconsumption.

This pattern can be illustrated as:

Number of Sodas Total Utility (Utils)
0 0
1 4
2 6
3 7
4 4

Notice that as the number of sodas increases, total utility rises at a decreasing rate and ultimately declines. This shift in total utility is known as marginal utility.

What Is Marginal Utility?

Marginal utility measures the change in satisfaction gained from consuming one additional unit of a good or service. In the soda example, the satisfaction increases by two utils after the second soda and by one util after the third soda.

However, after the fourth soda, satisfaction decreases, returning to the initial satisfaction level of four utils.

The marginal utility can be visualized as:

Number of Sodas Marginal Utility (Utils)
0 0
1 4
2 2
3 1
4 -3

While total utility increases for the second and third sodas, marginal utility diminishes and eventually turns negative, illustrating the law of diminishing utility, which states that marginal utility decreases with each additional unit consumed.

How to Calculate Marginal Utility

To compute marginal utility, follow this formula:

Marginal Utility = Change In Total Utility / Change In Units

Calculate the change in total utility by subtracting the previous utility from the current utility. Similarly, calculate the change in units by subtracting the previous quantity from the current quantity.

“Current” refers to the most recent utility measurement available. Ensure that the previous total utility matches the previous unit count.

Step By Step Calculation Of Marginal Utility

To visualize the calculation of marginal utility, follow these steps:

  1. Determine the total utility for the current consumption.

  2. Determine the total utility for previous consumption.

  3. Calculate the difference between the two totals.

  4. Identify the number of units consumed in the current instance.

  5. Identify the number of units consumed previously.

  6. Calculate the difference in unit counts.

  7. Divide the change in total utility by the change in units.

Number of Sodas Total Utility (Utils) Change in Total Utility Change in Units Marginal Utility
0 0 N/A N/A N/A
1 4 4 – 0 = 4 1 – 0 = 1 4
2 6 6 – 4 = 2 2 – 1 = 1 2
3 7 7 – 6 = 1 3 – 2 = 1 1
4 4 4 – 7 = -3 4 – 3 = 1 -3

This analysis examines the marginal utility between successive events, specifically the change with each additional soda consumed.

Alternatively, you can analyze the marginal utility between non-successive events. For instance, the marginal utility between one soda and three sodas can be averaged as 1.5, calculated by subtracting the total utility of three sodas (seven) from that of one soda (four), then dividing by the change in units (two).

Note that this average marginal utility reflects the variation in utility between the two quantities, as the marginal utility for one to two sodas is two, and for two to three sodas is one.

Types of Marginal Utility

Marginal utility can be categorized into three primary types:

  1. Positive marginal utility. This occurs when there is an increase in total utility with additional units. In our soda example, the first three sodas exhibit positive marginal utility.

  2. Zero marginal utility. This situation arises when total utility remains unchanged with additional units. For example, if the total utility for a third soda remained at six utils, equal to that of the second soda, this would represent zero marginal utility.

  3. Negative marginal utility. This occurs when total utility declines with additional units, as observed between the third and fourth sodas in our example.

Marginal Utility Per Dollar Spent

Marginal utility can also be expressed in terms of cost efficiency. To compare different goods or services, divide the marginal utility by the cost per unit. For instance, if each soda costs two dollars, the marginal utility per dollar would be calculated as follows:

Number of Sodas Marginal Utility (Utils) MU/$2.00
0 0 0
1 4 2
2 2 1
3 1 0.5
4 -3 -1.50

After enjoying two sodas, if you’re considering a third soda versus a bag of popcorn (also priced at two dollars), the popcorn offers a higher total utility of five, translating into a marginal utility of 2.5 per dollar. In this scenario, popcorn would be the more satisfying choice.

Why Should I Care About Marginal Utility?

Understanding marginal utility is valuable for both consumers and business owners.

  • For business stakeholders, marginal utility aids in predicting consumer behavior, which informs decisions regarding pricing, marketing strategies, and competition management.

  • For consumers, understanding marginal utility enhances spending decisions, guiding how to allocate funds across various goods and services.

Whether you aim to be a savvy shopper or a skilled business analyst, your grasp of marginal utility will lead to more efficient and informed choices.

Marginal Utility FAQ

  1. What is an example of marginal utility?

    An example of marginal utility is the satisfaction you feel as you consume a food item. For instance, the enjoyment from one cookie might be high, but a second cookie might only provide half as much satisfaction.

    Marginal utility is the change in total utility from consuming one additional unit. If the first cookie is rated at 10 utils, the marginal utility of the second cookie is 5 utils.

  2. What is a util?

    A util is a theoretical measure of satisfaction derived from consuming or owning a good. It’s a relative measure used to compare satisfaction levels when consuming different products.

  3. What is utility?

    Utility refers to the usefulness or pleasure derived from a product. For example, food satisfies hunger, while a fine wine may satisfy a desire for luxury.

  4. What is the difference between total utility and marginal utility?

    Total utility measures the aggregate satisfaction from all units consumed, whereas marginal utility measures the added satisfaction from consuming an additional unit. For instance, if one cookie provides 10 utils and a second cookie provides 5 utils, the total utility for two cookies is 15 utils. The marginal utility between zero and one cookie is 10 utils, while the marginal utility between one and two cookies is 5 utils.

  5. What happens to total utility when marginal utility is zero?

    When marginal utility is zero, total utility reaches its peak. No additional units can provide further satisfaction, as the consumer has reached their maximum enjoyment of the product.

    This concept aligns with the law of diminishing utility, which states that satisfaction from each additional unit typically decreases.

References

  1. Britannica – Marginal Utility
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Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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