1.

Explain the law of diminishing marginal utility with table and diagram.

Answer»

The Law of Diminishing Marginal Utility states that as more and more units of a  commodity are consumed (continuously), marginal utility derived from every additional unit must decline. 

Followings are some assumptions of the law of diminishing marginal utility: 

(i) It is assumed that utility can be measured and a consumer can express his satisfaction in quantitative terms such as as 1,2,3... etc. 

(ii) Consumption of reasonable quantity. 

(iii) Continuous consumption. 

(iv) Monetary measurement of utility. 

(v) No change in quantity. 

(vi) Rational consumer. 

(vii) MU of money remains constant. 

(viii) Independent utilities. 

(ix) Fixed income price. 

This law can be explained with the help of the following schedule :

Units ConsumedTotal utility(TU)Marginal Utility (MU)
1 
2 
3 
4		10 
18 
24 
28		10 
8 
6 
4


The above schedule shows that with the consumption of successive unit of a commodity, the level of satisfaction falls and becomes negative also, or in other words, MU tends to decline as consumption of the commodity increases.


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