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

Special drawing rights - imf, Special Drawing Rights: The late 1960s w...

Special Drawing Rights: The late 1960s witnessed that the growth in world resources did not keep pace with the growth in international trade. The slackness in the growth of re

describe the relationship of the demand curve , The definition of a price ...

The definition of a price maker is a "firm with some power to set the price because the demand curve for its output slopes downward", which in effect, means those firms with a down

Theory of the firm, Profit maximization is theoretically the most sound but...

Profit maximization is theoretically the most sound but practically unattainable objective of business firms. In the light of this statement critically appraise the Baumol’s sales

Environmental effects of the use of robots in factories, A 1500 word resear...

A 1500 word research paper on the economic, social or environmental effects of the widespread use of robots in factories (this meets Learning Outcome 4)

What is cost effectiveness analysis, Q. What is Cost effectiveness analysis...

Q. What is Cost effectiveness analysis? Cost effectiveness analysis A method which seeks to identify the least cost option for meeting a particular objective. It actives prior

Asymmetric information - insurance markets, Q. Asymmetric Information - Ins...

Q. Asymmetric Information - Insurance Markets? In the United States, health insurance is usually provided for employees through contracts between the insurance company and thei

Pure monopoly, advantage dis advantage of pure monopoly

advantage dis advantage of pure monopoly

Perform a one way anova, The Tastee Bakery Company supplies a bakery produc...

The Tastee Bakery Company supplies a bakery product to many supermarkets in a metropolitan area. The company wishes to study the effect of shelf display height employed by the supe

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

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