Utility Theory

Step 1: State the Law of Diminishing Marginal Utility.
The law of diminishing marginal utility states that as a person consumes more units of a good, the satisfaction (utility) derived from each additional unit decreases, while the total utility continues to increase, but at a diminishing rate. In other words, the marginal utility (the utility of consuming one more unit) decreases with each additional unit consumed.

Step 2: Assumptions of the Law.
1. **Constant Conditions**: The consumer's taste and preferences remain constant while consuming the good.
2. **No Change in the Quality of Goods**: The quality of the good consumed remains the same.
3. **Independent of Other Goods**: The consumption of one good is not affected by the consumption of another good.
4. **Short Time Period**: The consumer is consuming the good within a limited period of time.

Final Answer: