How to Calculate Marginal Utility per Dollar
Marginal utility per dollar equals a good's marginal utility divided by its price, MU ÷ P, the extra satisfaction each dollar buys.
The MU per Dollar formula
Calculator
Enter each good's marginal utility and price to see which one buys more satisfaction per dollar.
Utils from the next unit of X. In the example, a burrito worth 60 utils.
What one unit of X costs.
Utils from the next unit of Y. In the example, a smoothie worth 32 utils.
What one unit of Y costs.
Every dollar spent on good X buys 10 utils of satisfaction.
- Marginal utility per dollar, good Y
- 8
- Difference in utils per dollar
- 2
- Better next purchase
- Good X
Every dollar spent on good Y buys 8 utils of satisfaction.
Good X returns 2 more utils per dollar.
Spend the next dollar on the larger ratio, then recompute, since marginal utility falls as you buy more.
How to calculate MU per Dollar, step by step
- 1Find the marginal utility. Take the extra utility, in utils, from the next unit of the good.
- 2Divide by the price. MU ÷ P converts utils into utils per dollar so goods with different prices can be compared.
- 3Repeat for every good. Compute MU ÷ P for each option the consumer is choosing between.
- 4Buy the highest ratio first. Spend the next dollar on whichever good has the largest MU ÷ P, then recompute, since MU falls as you consume more.
Worked example: MU per Dollar
A burrito gives 60 utils and costs $6, so its marginal utility per dollar is 60 ÷ 6 = 10 utils. A smoothie gives 32 utils and costs $4, so 32 ÷ 4 = 8 utils per dollar. The burrito buys more satisfaction per dollar, so it is the better next purchase even though it has the higher price.
MU per Dollar questions
Why divide marginal utility by price?
Dividing by price puts goods with different prices on one common scale, utils per dollar. A good with the higher raw MU can still be the worse buy if it costs much more.
What if two goods have the same MU per dollar?
The consumer is in equilibrium between those two goods, because moving a dollar from one to the other would not change total utility. That equality plus a fully spent budget is the utility-maximizing rule.
Does MU per dollar stay constant?
No, it falls as you buy more of a good, because marginal utility declines with each extra unit while the price stays the same.
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