CHAPTER • Consumer Behavior 95 therefore makes Roberta better off (Note that B is also preferred to C, which represents the option of not using the health club at all.) We could also ask whether this new pricing system—called a two-part tariff—will increase the club’s profits If all members are like Roberta and Other recreational 100 activities ($) 80 60 40 more use generates more profit, then the answer is yes In general, however, the answer depends on two factors: the preferences of all members and the costs of operating the facility We discuss the twopart tariff in detail in Chapter 11, where we study ways in which firms with market power set prices C F IGURE 3.20 REVEALED PREFERENCE FOR RECREATION A B U1 U2 20 l1 25 l2 When facing budget line l1, an individual chooses to use a health club for 10 hours per week at point A When the fees are altered, she faces budget line l2 She is then made better off because market basket A can still be purchased, as can market basket B, which lies on a higher indifference curve 50 75 Amount of exercise (hours) 3.5 Marginal Utility and Consumer Choice In Section 3.3, we showed graphically how a consumer can maximize his or her satisfaction, given a budget constraint We this by finding the highest indifference curve that can be reached, given that budget constraint Because the highest indifference curve also has the highest attainable level of utility, it is natural to recast the consumer’s problem as one of maximizing utility subject to a budget constraint The concept of utility can also be used to recast our analysis in a way that provides additional insight To begin, let’s distinguish between the total utility obtained by consumption and the satisfaction obtained from the last item consumed Marginal utility (MU) measures the additional satisfaction obtained from consuming one additional unit of a good For example, the marginal utility associated with a consumption increase from to unit of food might be 9; from to 2, it might be 7; from to 3, it might be These numbers imply that the consumer has diminishing marginal utility: As more and more of a good is consumed, consuming additional amounts will yield smaller and smaller additions to utility Imagine, for example, the consumption of television: Marginal utility might fall after the second or third hour and could become very small after the fourth or fifth hour of viewing We can relate the concept of marginal utility to the consumer ’s utility-maximization problem in the following way Consider a small movement • marginal utility (MU) Additional satisfaction obtained from consuming one additional unit of a good • diminishing marginal utility Principle that as more of a good is consumed, the consumption of additional amounts will yield smaller additions to utility