Question

If a product has a diminishing, but positive, marginal utility, then total utility ________?

1) increases at a decreasing rate
2) increases at a constant rate
3) decreases at a decreasing rate
4) decreases at a constant rate

Answer 1

Total utility increases at a decreasing rate when marginal utility is diminishing yet positive, according to the law of diminishing marginal utility. As more units of a product are consumed, the additional satisfaction each unit provides decreases, despite total utility increasing overall.

Step-by-step explanation:

When a product has a diminishing, but positive, marginal utility, the total utility increases at a decreasing rate. This occurs because each additional unit consumed adds less to the total utility than the unit before it. The law of diminishing marginal utility illustrates this point, as it states that the marginal utility (additional satisfaction) obtained from consuming each additional unit of a good decreases as the amount consumed increases.

For instance, José's experience with T-shirts showcases diminishing marginal utility. The first T-shirt brings him a high satisfaction (22 utils), while the fourth adds less additional utility (18 utils). Despite this, José's total utility from T-shirts keeps rising, albeit by successively smaller increments. Therefore, total utility keeps going up, but the rate at which it increases slows down over time within the context of the law of diminishing returns.