Question

What do you understand by Average Utility ?

Hint:

The word "average" in economics almost always means "total divided by quantity." This applies to Average Cost (TC/Q), Average Revenue (TR/Q), and Average Utility (TU/Q).

Answer 1

Step 1: Understanding the Concept:
Average Utility (AU) is a measure of the per-unit satisfaction a consumer gets from a good. It is derived from the concept of Total Utility (TU), which is the total satisfaction obtained from consuming all units of a good.

Step 2: Detailed Explanation:
The formula for Average Utility is: \[ AU = \frac{TU}{Q} \] where: \begin{itemize} \item \(AU\) = Average Utility \item \(TU\) = Total Utility \item \(Q\) = Quantity of the commodity consumed \end{itemize} For example, if consuming 4 apples gives a total utility of 40 utils, the average utility is: \[ AU = \frac{40 \text{ utils}}{4 \text{ apples}} = 10 \text{ utils per apple} \] Average utility is different from marginal utility, which is the additional utility gained from consuming one more unit of the good. Generally, as consumption increases, both average and marginal utility tend to decrease.