Question

ASSIGNMENT 1. Define and explain the relationship between total utility, marginal utility, and the law of diminishing marginal utility.

2. Describe how rational consumers maximize utility using the utility maximization rule.

Answer 1

1 Ans

complete utility - it is whole psychological satisfaction which a purchaser derives from the consumption of a commodity is known as complete utility

Marginal utility - it is and addition made in total utility by ingesting and further unit of a commodity is often called marginal utility

Relationship Between total Utility And Marginal Utility

When marginal utility is constructive , complete utility raises
When marginal utility is zero , complete utility is at highest
When marginal utility is terrible , whole utility decreases

2Ans

the speculation of consumer conduct makes use of the legislation of diminishing marginal utility to give an explanation for how shoppers allocate their incomes. The utility maximization mannequin is developed headquartered on the following assumptions:
1. Purchasers are assumed to be rational, seeking to get probably the most value for their money.
2. Patrons incomes are constrained given that their man or woman assets are restricted. They face a finances constraint.
Three. Patrons have clear preferences for quite a lot of goods and offerings, accordingly they understand their MU for each successive units of the product.
Four. Every item has a fee tag. Buyers need to pick among substitute goods with their limited money incomes.
The Utility Maximization rule states: customers come to a decision to allocate their money incomes so that the final greenback spent on each and every product bought yields the identical quantity of additional marginal utility.
The algebraic declaration is that customers will allocate earnings in the sort of method that:
MU of product A / rate of A = MU of product B / price of B = MU of product C / fee of C = and so on.
It is marginal utility per buck spent that's equalized. So long as one good provides more utility per dollar than a different, the customer will purchase more of that good; as more of that product is purchased, its MU diminishes unless the amount of MU per buck simply equals that of the opposite merchandise.
Within the following illustration, it illustrated the consumption prospects of this client below quite a lot of revenue stages at fixed prices of excellent X and Y.