Given below are two statements:
Statement 1: Total utility starts falling when marginal utility becomes negative.
Statement 2: Marginal utility is zero when total utility is maximum and constant.
Which statement/s are correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Both the statements are true.
Statement 1: “Total utility starts falling when marginal utility becomes negative.”,This statement is true. According to the relationship between Total Utility (TU) and Marginal Utility (MU), when MU becomes negative, each additional unit of consumption reduces total satisfaction. As a result, Total Utility starts declining.
Statement 2: “Marginal utility is zero when total utility is maximum and constant.” This statement is also true. TU reaches its maximum level when consuming an additional unit adds no extra satisfaction. At this point, MU becomes zero and TU remains constant.