The change in consumption from four to five is what produces the marginal utility of 25 units. The more books House A purchases a month the more total utility it gets. However the marginal utility decreases, with each purchase. For example, marginal utility from the first book is 50 units. The second book has a marginal utility of 38 units and the third, 33 units. This decrease in marginal utility as the consumption of a good increases is the principle of diminishing marginal utility. Marginal utility is positive but diminishes as consumption increases. These two features come about in this way: The members of House A enjoy reading so benefit from the purchase of books. That casts marginal utility in a positive light. Marginal utility diminishes as more books are purchased due in part to opportunity cost and in part to lessening benefit. Those readers still enjoy a good book but the 30th is not quite as satisfying as the first. Utility maximization is the attainment of the greatest possible utility. A households income and the prices that it faces limit the utility that it can obtain. The model in Table 3 is used to examine the allocation of spending to establish the maximum total utility.Assume that Household A has $30.00 per month book and beverage budget. When House A consumes two books and six beverages a month it receives 313 units of total utility. This is the best that can be done within the Any other combination of books and beverages generates less than 313 units of total utility. In maximizing total utility, that is, allocating income to achieve the most total utility units, consumer equilibrium is created.Books and Beverages Utility-Maximization CombinationsTable 3________________________________________________________________________Books Total Utility from BeveragesQuantity Total Utility Books & BeveragesTotal Utility Beverages 0 0 291 29110 1 50310 260 8 ...
