The table shows that when the consumer consumes the first unit of orange, they derive utility equal to 4 utils. When they consume the second unit of orange, they derive less utility than from the first, i.e., 3 utils. 

When the consumer consumes the third unit of orange, they derive even less utility than from the first and second units, i.e., 2 utils.

Similarly, from the fourth unit of orange, they derive less utility than from the third, i.e., 1 util. Here, the utility derived by the consumer up to the consumption of the fourth unit of orange is positive. But when the fifth unit of orange is consumed, the marginal utility decreases to zero, meaning zero utility is derived from the fifth unit of orange.

This state is the state of full satisfaction or satiation for the consumer. If the consumer consumes an additional unit of orange after this, i.e., the sixth unit, they derive disutility or negative utility instead of utility from it.

Here, the consumer is shown to derive -1 util of utility from consuming the sixth unit of orange. The law of diminishing marginal utility is explained below with the help of a graph:

In the graph given above, the x-axis measures the units of orange, and the y-axis measures the marginal utility derived from the orange.

Here, the consumer derives the highest marginal utility, i.e., 4, from consuming the first unit of orange. Similarly, they derive less marginal utility, i.e., 3, from consuming the second unit than from the first.

Similarly, when the third and fourth units of orange are consumed, the marginal utility decreases to 2 and 1, respectively. After this, when the fifth unit of orange is consumed, the marginal utility decreases to 0 (zero). This is shown by point E on the x-axis.

This point where marginal utility is zero is called the point of full satisfaction. At this point, total utility is maximum. If the consumer consumes additional units of orange after this, i.e., the sixth unit, the marginal utility decreases to negative, i.e., -1.

This is shown by point F below the x-axis. If we sequentially join the various combinations or points A, B, C, D, E, and F showing the units of orange and the marginal utility derived from those units, a marginal utility curve sloping downwards from left to right, i.e., with a negative slope, is formed.

This marginal utility curve shows that as a consumer consumes successive units of a good, the marginal utility derived from the later units gradually decreases.

In other words, the negatively sloped marginal utility curve AF shows the law of diminishing marginal utility.

Limitations of the Law of Diminishing Marginal Utility

While stating the laws or principles of economics, the phrase "other things remaining constant" is used. This means that certain necessary conditions must be met for the law to apply. These conditions are called the assumptions of the law or principle. 

Like other laws or principles of economics, the law of diminishing marginal utility is also based on certain assumptions. This law does not apply when these assumptions are not in effect. 

The situations where the law of diminishing marginal utility does not apply are called the limitations or exceptions of the law of diminishing marginal utility. Some limitations or exceptions of the law of diminishing marginal utility are presented below:

(a) If the consumer is not rational: This law does not apply if the consumer is not rational, i.e., if their mental state changes during the process of consuming the good. For example, if a consumer consumes intoxicating substances while consuming a good, they may derive even more utility from the later units of the good than from the earlier units due to the intoxication.

(b) If the units of the good consumed are not homogeneous: The law of diminishing marginal utility cannot apply if the taste, quality, color, and size of each unit of the good consumed are not the same. For example, if the first unit of the good consumed is tasteless and the second unit is sweet, the consumer will derive more utility from the second unit than from the first. This is contrary to the law of diminishing marginal utility.

(c) If the units of the good consumed are not appropriate, standard, and defined: The law of diminishing marginal utility does not work if the units of the good consumed are not appropriate and defined. For example, if a thirsty person is initially given a spoonful of water and then immediately given a glass of water, they will derive more utility from the second unit (a glass of water) than from the first unit (a spoonful of water). 

Therefore, the units of the good consumed must be appropriate during the period of application or testing of the law of diminishing marginal utility. Similarly, the units of the good consumed must be standard, i.e., accepted or commonly used by everyone. 

For example, a glass of milk, a cup of tea, a plate of food, a pair of shoes, etc., can be standard units. Also, it must be defined in which unit the good is consumed. For example, it should be clear whether the unit of the good being consumed, such as water, is a cup, glass, or bottle.

(d) If there is no regularity in the consumption of units of the good: The law of diminishing marginal utility does not work if the consumption of units of the good does not occur within a specific period, and if the units of the good are not consumed continuously, i.e., if there is a long interval between the consumption of one unit and another. 

If there is a long interval between the consumption of one unit and another, the second unit of the good may provide more utility than the first unit. If this happens, it contradicts the law of diminishing marginal utility.

(e) If the consumer's habits, interests, tastes, fashion, and preferences change during the consumption process: The law of diminishing marginal utility does not apply if the consumer's habits, interests, tastes, fashion, and preferences change during the consumption process. For example, a person who is not used to drinking alcohol derives zero utility when they initially drink alcohol. 

But later, if they develop a habit of drinking alcohol, they derive utility from alcohol. Similarly, if a consumer uses the same type of shoes from a company that is not fashionable, the second pair of shoes will give them less utility than the first pair. 

But if everyone starts using those shoes in the market, i.e., the fashion for those shoes increases, the consumer will derive more utility from the later pairs of shoes. Similarly, for an uneducated person, a book is not a priority, so they do not derive any utility from the book. 

But if they want to become educated and start reading, the book becomes a priority. As a result, they derive utility from the book.

(f) If the price of the good consumed and the price of its substitute goods change: When a consumer buys a good, they compare the utility derived from the good with the utility sacrificed through money by paying the price of the good. 

When the price of the good decreases, the consumer's desire to buy the good intensifies, i.e., the utility of the good also increases. Similarly, if the price of other goods that can be used instead of the good consumed by the consumer, i.e., substitute goods, increases while the price of the good consumed remains constant, the consumer's desire to increase the purchase of the good whose price remains constant also increases, i.e., the utility of the good whose price remains constant increases. 

Therefore, the law of diminishing marginal utility does not apply if the price of the good consumed and the price of its substitute goods change.

Similarly, the law of diminishing marginal utility does not apply if the consumer's income changes and if the utility derived from the consumption of units of the good cannot be measured numerically.

Importance of the Law of Diminishing Marginal Utility:

Since the law of diminishing marginal utility is based on the general behavior of consumers, various economic policies and activities are guided by it. 

The law of diminishing marginal utility helps the government to maintain an equal distribution of wealth in society through taxation, helps producers and sellers to determine the price and forecast the demand for goods and services in the market, and helps consumers to maximize their satisfaction by comparing the amount they spend and the satisfaction they derive from the good during the process of consuming the good, as well as to determine consumer surplus.