Question

Explain the law of diminishing marginal utility with schedule.

Hint:

The point where $\text{MU} = 0$ is called the "Point of Satiety," where Total Utility is at its maximum.

Answer 1

Step 1: Understanding the Concept:
The Law of Diminishing Marginal Utility (DMU) is a fundamental law of consumption. It states that as a consumer consumes more and more units of a specific commodity, the utility derived from each successive unit goes on declining.

Step 2: Presenting the Schedule:
Consider a hungry consumer eating units of chocolate: \begin{table}[h] \centering \begin{tabular}{|c|c|c|} \hline Units of Chocolate & Total Utility (TU) & Marginal Utility (MU)
\hline 1 & 20 & 20
\hline 2 & 35 & 15
\hline 3 & 45 & 10
\hline 4 & 50 & 5
\hline 5 & 50 & 0
\hline 6 & 45 & -5
\hline \end{tabular} \end{table

Step 3: Explanation of the Law:
As shown in the schedule, the first unit gives 20 units of satisfaction (MU). By the 4th unit, the satisfaction drops to 5. At the 5th unit, the consumer is fully satisfied ($\text{MU} = 0$). If they continue to eat (6th unit), the utility becomes negative, meaning it causes dissatisfaction.

Step 4: Final Answer:
The law states that Marginal Utility declines as consumption increases, assuming constant tastes and continuous consumption.