The correct answer is Option 4: Statement 2 is true and Statement 1 is false
Statement 1: "Total utility can be negative." – False
- Total utility (TU) is the sum of marginal utilities (MU) derived from consuming multiple units of a good.
- TU cannot be negative, because even if a consumer stops deriving additional satisfaction, total utility just stops increasing or remains constant.
- It may decline if further consumption causes dissatisfaction, but it does not go below zero.
- Therefore, this statement is incorrect.
Statement 2: "Marginal utility is zero when total utility is maximum and constant." – True
- Marginal utility (MU) is the additional satisfaction gained from consuming one more unit of a good.
- As consumption increases, MU decreases and eventually reaches zero when TU is at its maximum.
- Beyond this point, consuming additional units may lead to negative MU, reducing TU.
- Since MU = 0 when TU is maximum and constant, this statement is correct.
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