Question

Create a original numeric examples that demonstrate how utility maximization works. Also why is Optimization, calculus, graphs important to economics and how does it connect to consumer Behavior and Individual and Market Demand

Answer 1

The utility maximization rule states : comsumers decide to allocate their money ,incomes so that the last dollar spent on each product purchased yield the same amout of extra marginal utility. when deciding how to spend a fixed some, individual will purchase the combination of goods,services that give the most satisfaction. example of utility maximization.

Suppose we have two products one is apple and second is banana. The price of apple is 10/-kg and the price of banana is 4/- kg. the quantity of apple we want to purchase is 2 kg and quantity of banana is 4 kg. the marginal utility of apple is 40 and marginal utility of banana is 20.

Apple Banana

Quantity. 2 kg. 4 kg.

Price per kg. 10 /- 4/-

Marginal Utility. 40 20

Apple = MU ÷ P = 40÷10 = 4

Banana = MU÷P = 20÷4 = 5

I should buy more bananas to maximize utility because the MU per kg is higher than apple.

Calculus is the most common type of math found in economics. calculus includes the use of various formulas to measure limits, functions and derivatives.

In economics calculus is used to study and record complex information. commonly on graphs and curves. calculus allows for the determination of a maximal profit by providing an easy way of calculate marginal cost and marginal revenue. it can also be used to study supply and demand curves.

The optimization plays very important roled especially in business because it helps to reduce costs that can lead to higher profits and to succes in the competitive fight.

The purpose of optimization is to achieve the best design relative to a set of prioritized criteria or constraints. these include maximizing factors sach as productivity, strengths, reliability, efficiency and utilization. this decision making process is known as optimization.

If we don't optimize and calculus we can't do the decision making for maximize the utility and can't maximize our profit. that's optimization and calculus is very important to economics.

Utility maximization directly connect to consumer behaviour and individual and market demand. As the income increases total utility increases also. The theory of consumer behaviour uses the law of diminishing marginal utility to explain how consumer allocate their incomes. When a consumer is maximising utility, the ratio of marginal utility to price is the same for all goods. an income compensated price reduction increases the extra utility per dollar available from the good whose price has fallen, a consumer will thus purchase more of it. so as price decreases more quantity comsume so that utility maximized.