Given below are two statements:
Statement 1: When TU is constant is indicates that MU has becomes zero.
Statement 2: When TU starts falling that means now MU has become positive.
Which statement/s are correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Statement 1 is true and Statement 2 is false
Here's why:
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Statement 1: True. When Total Utility (TU) is constant, Marginal Utility (MU) is indeed zero. This is because TU doesn't change, so additional units of the good provide no extra satisfaction.
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Statement 2: False. When TU starts falling, it means Marginal Utility (MU) has become negative, not positive. A falling TU indicates that each additional unit consumed is decreasing total satisfaction.