Read the following statements -
Assertion (A) and Reasoning (R):
Assertion: With increase in consumption of a commodity, total utility increases but at a diminishing rate.
Reasoning: Marginal utility is the slope of total utility and marginal utility decreases with increase in consumption of commodity due to law of diminishing marginal utility.
From the given alternatives choose the correct one:
Answer & explanation
Correct answer: option 1
Marginal utility is defined as the change in the total utility as a result of consumption of additional unit of the commodity and slope of total utility is defined as the change in total utility as a result of change quantity of commodity consumed. Hence MU is the slope of TU. It is well known that MU decreases with increase in the consumption of the commodity due to law of diminishing marginal utility. As a result, when MU is falling but is still positive, TU increases but at a diminishing rate.