This document discusses the law of diminishing marginal utility. It defines utility as the satisfaction or benefit derived from consuming goods and services, which can be measured cardinally or ordinally. Total utility is the sum of utility from consuming multiple units of a good, while marginal utility is the change in total utility from consuming one additional unit. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility of each additional unit decreases, assuming other consumption stays constant. This is illustrated with an example showing that marginal utility declines as a person consumes more and more ice cream. There are assumptions and limitations to when this law holds true.

1. Managerial Economics
Topic : Law of diminishing marginal utility
Presented by
Lipi

Neelima Singh

Shashanka Baruah

Sohini Bhuwalka

2. What is Utility?
-Product angle: Want satisfying property of any
product (absolute).
-Consumer angle: The psychological feeling of
satisfaction or happiness or well being or benefit
derived by the consumer by the consumption of
certain units of a good or service at a certain
point of time (subjective).

3. Utility can be measured in two
ways:
-Cardinal Utility:Assigning numerical values to the
amount of satisfaction
-Ordinal Utility::
Not assigning numerical values to
the amount of satisfaction but indicating the order of
preferences, that is, what is preferred to what

4. Utility is of two types:
-Total Utility
-Marginal Utility

5. Total Utility
Sum of utility derived by consumer from multiple units consumed
at a point or over a period of time
Example: A consumer consumes 3 units of X and
derives utility u1, u2, u3 and u4
Total Utility Ux= u1 + u2 + u3

6. Total Utility
• The total satisfaction of wants & needs
obtained from the consumption of
goods & services
• Based on the presumption that the
amount of utility generated from the
consumption of a good can be explicitly
measures
• Hypothetical measure is util

7. Marginal Utility
The change in total utility ( TU) derived from
one additional unit of consumption ( X)
MU = TU/ X

8. Law of Diminishing Marginal Utility
“As the quantity consumed of a commodity
goes on increasing, the utility derived from
each successive unit goes on diminishing,
consumption
of
all
remaining the same”
other
commodities

9. When the changes in consumption are
infinitely small, marginal utility is the
derivative of total utility.
MU = dTU/dX

10. Law of Diminishing
Marginal Utility

11. 70
60
50
40
30
total utility
20
marginal utility
10
0
-10
-20
1
2
3
4
5
6

12. Example
As an example assume you have
one ice cream,
1 Ice Cream you feel Ecstatic

13. You have a second Ice cream
2nd Ice Cream, u still feel Ecstatic
13

14. You have the third Ice cream
3rd Ice Cream You Feel Very Happy
14

15. You have the fourth Ice Cream
4th Ice Cream You Feel
Happy
15

16. You have the fifth Ice Cream,
5th Ice Cream You Still Feel
Happy
16

17. You have the sixth Ice Cream
6th Ice Cream You are
not so Happy
17

18. You have the seventh Ice Cream
7th Ice Cream You are
not so Happy
18

19. You have the eighth Ice Cream
8th Ice Cream
You fall sick
19

20. The following table will make the law of
diminishing marginal utility more clear
Units
Total Utility
Marginal Utility
1st ice cream
20
20
2nd ice cream
32
12
3rd ice cream
40
8
4th ice cream
44
4
5th ice cream
45
1
6th ice cream
45
0
7TH ice cream
42
-3
8th ice cream
40
-5

21. Assumptions
Law of Diminishing MU holds only under certain
conditions (assumptions) :
1.
Unit of the product s.b. standard – cup of tea,
bottle of cold drink, etc.
2.
No small units are consumed
3.
Consumer’s taste/preference must remain same
during period of consumption
4.
There must be continuity in consumption (∆t =
short)
5.
Mental condition of the consumer must remain
normal during the period of consumption
21

22. Limitations/Exceptions
of Law of Diminishing Marginal
Utility
(i) Case of intoxicants
(ii) Rare collection
(iii) Application to money

23. Conclusion
 We
can say that the law of diminishing
utility, like other laws of Economics, is
simply a statement of tendency. It holds
good, provided other factors remain
constant.

24. Thank you !!!