Skip to content

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

When a consumer keeps consuming a good under the law of diminishing marginal utility, total utility reaches its maximum at the point where:

Total utility is maximum where marginal utility becomes zero. Until then, each extra unit adds positive utility, so the total keeps rising. At zero marginal utility the consumer is fully satisfied, and any further unit would give negative marginal utility and reduce total utility.

  1. AMarginal utility is at its highest value
  2. BMarginal utility becomes zeroCorrect
  3. CMarginal utility becomes negative
  4. DAverage utility is equal to total utility

Explanation

Total utility increases as long as MU is positive, though at a decreasing rate. When MU equals zero, adding another unit adds nothing, so TU is at its peak (satiety point). Beyond this, MU turns negative and TU falls.

Did you get it right without looking?

One question tells you little. A timed set on Utility, Wealth, Production shows your real accuracy, how long you take and where you lose marks.

Practise Utility, Wealth, ProductionFree diagnostic mock

More Utility, Wealth, Production questions