CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production
Ananya's total utility from consuming chocolates is 30 utils for 2 units, 42 utils for 3 units and 50 utils for 4 units. What is the marginal utility of the 4th chocolate and what does the pattern of marginal utility from the 3rd to 4th unit show?
The marginal utility of the 4th chocolate is 8 utils, found as 50 minus 42. Since the 3rd chocolate gave 12 utils, marginal utility is falling, which illustrates the law of diminishing marginal utility.
- A8 utils; marginal utility is fallingCorrect
- B50 utils; marginal utility is rising
- C8 utils; marginal utility is rising
- D12 utils; marginal utility is falling
Explanation
MU of 4th = 50 - 42 = 8 utils. MU of 3rd = 42 - 30 = 12 utils. Since MU falls from 12 to 8, diminishing marginal utility is shown. The option with 12 utils confuses the 3rd unit's MU with the 4th's.
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