State with reason whether you agree or disagree. The law of DMU could be explained with example and diagram.
Open in App
Solution
Units of commodity
Total utility
Marginal utility
1
10
10
2
18
8
3
24
6
4
28
4
5
30
2
6
30
0
7
28
-2
Yes, I do agree with this statement.
The Law Of Diminishing Marginal Utility states that all else equal as consumption increases the marginal utility derived from each additional unit declines. Marginal utility is derived as the change in utility as an additional unit is consumed. Utility is an economic term used to represent satisfaction or happiness. Marginal utility is the incremental increase in utility that results from consumption of one additional unit.
Consumers handle the law of diminishing marginal utility by consuming numerous quantities of numerous goods.
In the above figure, the marginal utility of a good is measured on the y-axis and the units on X-axis. With the help of the schedule, the points A, B, C, D, E, F and G are derived by the different combinations of units of the commodity and the marginal utility gained by different units of commodity. By joining these points, we get the marginal utility curve. The marginal utility curve has the downward negative slope. It intersects the X-axis at the point of 6th unit of the commodity. At this point "F" the marginal utility becomes zero. When the MU curve goes beyond this point, the MU becomes negative. So there is an inverse functional relationship between the units of a commodity and the marginal utility of that commodity.