Marginal utility and indifference curve, Microeconomics

Assignment Help:

Marginal Utility and Indifference Curve

- If the consumption of a product moves along an indifference curve, additional utility derived from the increase in consumption of single good, food (F), should balance the loss of utility from decrease in consumption in other good, clothing (C).

* Formally:

983_marginal utility and indifference curve.png

* Rearranging:  

1166_marginal utility and indifference curve1.png

  Because:

1969_marginal utility and indifference curve2.png

*  When the consumers maximize satisfaction the:

1346_marginal utility and indifference curve3.png

* Since the MRS is also equal to the ratio of the marginal utilities of consuming F and C, it follows:
1341_marginal utility and indifference curve4.png

*  Which gives equation for the utility maximization?
1510_marginal utility and indifference curve5.png

* Total utility is maximized when budget is allocated such that the marginal utility per dollar of expenditure is same for every good.

* This can be referred to as equal marginal principle.


Related Discussions:- Marginal utility and indifference curve

Balance of payments account, Balance of payments account: The foreign ...

Balance of payments account: The foreign exchange market is an organizational setting within which individuals, business firms, banks etc buy and sell foreign currency. It has

Concepts of economic development - economic growth, Normal 0 f...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Partial input elasticity of output, Partial Input Elasticity of Output:   ...

Partial Input Elasticity of Output:   This is a short-run concept which deals with the variability of only one factor keeping the others constant. There are three kinds of retu

Consumer surplus, what is the application of consumer surplus

what is the application of consumer surplus

Determine the economic profit, Johnson Farms owns valuable farm land that a...

Johnson Farms owns valuable farm land that allows it to produce wheat at a lower cost than its competitors. The company reports large profits each year on its accounting statements

Break even point, explain the various marginal uses and limitations of brea...

explain the various marginal uses and limitations of break even poin?

Bayesian Nash Equilibrium, Consider 2 firms i=1,2 producing quantities q1 a...

Consider 2 firms i=1,2 producing quantities q1 and q2 respectively. Let the market price be given by P=a-b(q1+q2). Firm 1''s Marginal cost c is common knowledge but 2''s cost is no

Neutrality - features of bureaucracy, Neutrality: Bureaucracy is apoli...

Neutrality: Bureaucracy is apolitical and neutral. Prof. Frocderich mentions the following features of bureaucracy: (i) differentiation of functions, (ii) qualifications for o

Financial market, Explain the effect of increased money supply on bond pric...

Explain the effect of increased money supply on bond prices

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd