Managerial Economics

Chapter 5

Cardinal Utility Approach

After studying this chapter, you should be able to understand:

• It was Alfred Marshall who first discussed the role played by the theory of utility in the theory of value.
• In Marshall’s theory, the concept of utility is cardinal.
• The price that a consumer is willing to pay for a good is an indication of the utility of that good to the consumer.
• Total utility is the sum of the utility, which a consumer derives from the consumption of the different units of a good.
• Marginal utility of a good is the change in the total utility from consuming an additional unit of the good.
• According to the law of diminishing marginal utility as the quantity consumed of any one good increases, while the consumption of all other ...