Question : Which of the following statement is correct?
(a) TU increases till MU is positive.
(b) TU is maximum when MU is equal to zero.
(c) TU declines when MU is negative.
Option 1: A only
Option 2: B only
Option 3: A and B only
Option 4: A B and C
Correct Answer: A B and C
Solution :
1. TU increases with an increase in consumption of a commodity as long as MU is positive. In this phase, TU increases but a diminishing rate as MU from each successive unit tends to diminish.
2. When TU reaches its maximum, MU becomes zero. TU stops rising at this stage. This point is known as point of satiety.
3. When consumption is increased beyond the point of satiety, TU starts falling as MU becomes negative.
1. As long as MU is positive, TU rises as a commodity's consumption does. While MU from each succeeding unit tends to drop, TU increases in this phase but at a diminishing pace.
2. MU is zero when TU reaches its greatest value. At this point, TU stops climbing. This point is known as the point of satiety.
3. When consumption is increased beyond the point of satiety, TU starts falling as MU becomes negative.
Hence all are the correct.
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