What happens to the total utility if the marginal utility of commodity is negative?
Answer & explanation
Correct answer: option 2
The correct answer is option 2: total utility decreases
- Total Utility (TU) is the sum of Marginal Utilities (MU) of all units consumed.
- Marginal Utility (MU) refers to the additional satisfaction gained from consuming one more unit of a commodity.
- When MU is positive, TU increases.
- When MU is zero, TU is at its maximum.
- When MU becomes negative, it means consuming more of the commodity reduces satisfaction, leading to a decline in total utility.