What happens to the total utility, when marginal utility starts declining but is still positive?
Answer & explanation
Correct answer: option 1
The correct answer is option 1: TU increases but at a diminishing rate
When MU is increasing, TU increases at an increasing rate.
When MU starts declining but is still positive, TU increases but at a diminishing rate. T
hen there comes a point where the TU is maximum and MU is zero, this is the point of maximum satisfaction. Consumption beyond this leads to decline in the TU due to the fact that MU is now negative.