The correct answer is: C. Both A and B
- Law of Diminishing Marginal Utility
The law of diminishing marginal utility states that as a consumer consumes more of a good or service, the additional satisfaction or utility gained from each additional unit consumed declines. In other words, the more you have of something, the less you value each additional unit.
For example, let’s say you’re really hungry and you order a pizza. The first slice of pizza will taste amazing and you’ll get a lot of utility from it. The second slice will still taste good, but not as good as the first slice. The third slice will still be good, but not as good as the second slice, and so on.
- Law of Diminishing Returns
The law of diminishing returns states that in all productive processes, adding more of one input (e.g., labor) while holding all other inputs constant will at some point yield lower incremental per-unit returns.
In other words, if you have a fixed amount of land and you add more and more workers, at some point the additional output from each additional worker will start to decline. This is because the workers will start to get in each other’s way and there will be less and less land for each worker to work with.
- Explanation
In the context of the question, statement A is correct because it is a statement of the law of diminishing marginal utility. Statement B is also correct because it is a statement of the law of diminishing returns. Therefore, the correct answer is C.