Final answer:
When marginal utility is zero, total utility has reached its maximum and remains constant, indicating that additional consumption does not increase the consumer's satisfaction. This condition represents a point where the consumer has maximized their satisfaction given their budget constraint.
Step-by-step explanation:
When marginal utility is zero, it means that consuming additional units of a good or service provides no additional satisfaction or utility to a consumer. At this point, the total utility, which is the overall satisfaction obtained from consuming goods or services, reaches its maximum level. Therefore, if a consumer continues to consume additional quantities when the marginal utility is zero, the total utility will no longer increase and it will stay constant. This is because the additional units are not providing any extra satisfaction that would add to the total utility.
In terms of a budget constraint line, the consumer is looking at the various combinations of goods that are affordable given their income and is trying to maximize satisfaction – or total utility – under this constraint. Using diminishing marginal utility, which states that as a person consumes more of a product, the gain in utility from consuming additional units will eventually decline, the consumer seeks to balance his or her budget in a way that the utility gained per dollar spent is equal for all goods. This is achieved when the marginal utility of consuming an additional unit falls to zero, and no incentive remains to keep spending more on that particular good.
Behavior of Total Utility
- If marginal utility is positive, total utility increases.
- If marginal utility is zero, total utility does not change and is at its peak.
- If marginal utility becomes negative, total utility starts to decrease.