Total profit

economic-dictionary

The total utility corresponds to the total satisfaction that an individual obtains for the consumption of a certain amount of goods or services.

The total utility is calculated as the sum of the utilities that the consumption of a certain amount of goods or services reports to us.

The total utility curve (as we can see below) has an upward behavior until it reaches a saturation point where it begins to fall. The shape of the curve is explained by the fact that as we consume additional units of a good or service each time we value them less, until we reach a point where we no longer want to consume more.

Total profit example

An example that clearly reflects the behavior of said utility is the consumption of food. Suppose we are very hungry and pass a pastry shop. The first cake we eat will give us a high profit since it calms our hunger. We still enjoy the second cake but we are not so hungry anymore. The third cake is of little use to us since we are filling up. The fourth cake is already starting to be too much. Definitely the fifth will no longer give us any use and could even do us bad.

In economic terms we say that the total utility is the utility that the consumption of all the units of the good gives us (in this case 5 cakes). Marginal utility, on the other hand, is the utility that each additional unit of the good provides us (the utility of each additional cake that we consume).

Total utility is increasing when marginal utility is positive. The latter presents a decreasing curve, since each additional unit provides less utility than the previous one, and can even become negative (when the consumption of an additional unit hurts us).

When the consumption of an additional unit no longer provides utility to the consumer (the fourth unit of cake leaves us saturated) it is said that we have reached the saturation point.

Total profit charts

In the following graph we can see the curves of total utility and marginal utility of our example. As we can see, the first is increasing until we consume the fourth cake (saturation point) where it begins to decrease.

The marginal utility curve, meanwhile, is always decreasing, becoming negative in the fifth pie (past the saturation point).

Curves of the different utilities

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