Final answer:
Marginal utility refers to the additional satisfaction gained from consuming one more unit of a good. Diminishing marginal returns occur when the satisfaction gained from each additional unit decreases.
Step-by-step explanation:
The concept of marginal utility refers to the additional satisfaction or utility that a person derives from consuming one more unit of a good or service. The marginal utility schedule shows the change in total utility as more units of a good are consumed. The MU/P ratio, or marginal utility per dollar spent, shows the additional utility gained from spending one more dollar on a good.
Diminishing marginal returns occur when the marginal utility of a good decreases as more units of the good are consumed. This means that each additional unit of the good provides less satisfaction than the previous unit. The law of diminishing marginal utility states that as the quantity consumed increases, the marginal utility decreases.