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CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production

Anita's total utility from glasses of sugarcane juice is: 1 glass = 30 utils, 2 glasses = 50 utils, 3 glasses = 62 utils, 4 glasses = 68 utils. What is the marginal utility of the 3rd glass, and is it consistent with the law of diminishing marginal utility?

The marginal utility of the third glass is 12 utils, found as 62 minus 50. Marginal utilities run 30, 20, 12 and 6, falling with each glass, so the data is consistent with the law. Total utility rises only because marginal utility remains positive.

  1. A12 utils; consistent, since it is lower than the 2nd glass's 20 utilsCorrect
  2. B62 utils; consistent, since total utility is rising
  3. C12 utils; not consistent, since total utility is still rising
  4. D20 utils; consistent, since it is lower than the 1st glass's 30 utils

Explanation

MU of 3rd glass = TU3 - TU2 = 62 - 50 = 12 utils. The marginal utilities are 30, 20, 12, 6, which fall steadily. Option 62 confuses total with marginal utility, and rising total utility does not contradict the law because MU is still positive.

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