graphically illustrate the derivation of the condition associated wirh utility maximization. EXPLAIN

Expert Solution

Answer UTILITY MAXIMIZATION :

Here ,we seek to get highest satisfaction from making economical decision . Here the DIMINISHING law of marginal utility applies making marginal utility to slope downwards and as we go one adding factors of production into production process every additional unit prouced will be less than marginally efficient .

UTILITY MAXIMISATION CONDITION - when total utility is maximum and the marginal utility from last good consumed is equal to zero which as per graph is at 5 quantity of good

How much to consume : Consumer will consume till marginal utility is greater than or equal to price. As per graph OPTIMAL Consumption is 2 as third gives utility equal to 50p which is less than price

Conclusion

As done for single good can also be applied to more than one good .So when you have to decide from different goods ,Equi marginal principle says that consumer will maximise total utility from consuming combination of goods if more than one . I.e. MUa ÷ MUb = Pa/ Pb

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Rahul Sunny answered 1 year ago

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