Marginal utility is the satisfaction that a consumer gains from each additional unit of a specific product. Say that you buy ice cream. In turn, you receive a definite level of utility or satisfaction. Later, you may decide to buy another one, which provides further satisfaction. The utility gained from the second ice cream tub or scoop is the marginal utility.
It is important to understand the marginal utility to put a quantifiable value on your goods and services. This is measured by how much satisfaction is gained from buying more of a product, and how the utility of the product changes when one or more new units are purchased. In other words, it is defined as how much an individual is willing to pay for a service or goods.
In answering how to calculate the marginal benefit, use the below formula:
Change in total utility/Change in the number of units consumed
The calculation is done using the following steps:
- Determine the total utility of the first event
- Note the total utility of the second event
- Calculate the difference between both events (or more events as necessary)
- Calculate the difference in the number of goods between the events
- Put these data points into the formula to determine your marginal utility