Question

Answer the following question using the table below.

At what point does diminishing marginal utility set in?

If apples were freely given away at zero cost, how many apples would she choose to consume?

Numbers of apples	TU	MU
1	7	7
2	13	6
3	18	5
4	22	4
5	25	3
6	27	2
7	28	1
8	28	0
9	27	-1
10	25	-2

Answer 1

Answer to the question no. 1:

From the very begining (Unit 1), the diminishing marginal utility sets in. The diminishing marginal utility reflects that as more and more of the one commodity is consumed, the marginal utility derived from the the consumption of that commodity declines. So, we can see in the table that the marginal utility is falling from the unit 1 of consumption itself. That means as more and more apple is consumed the marginal utility derived from every additional unit of apple declines.

Answer to the question no. 2:

If the apple is given at zero cost or at a price equal to zero, the consumer will consume 8 units of apple. Because if she consumes more than 8 units her marginal utility will be negative and as a her total utility will decline. Thus, she will consume till the level where the MU becomes zero because at thatlevel the TU is highest.

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