Answer to Question #182948 in Microeconomics for Noor

Question

State and explain the intuition behind the equi-marginal principle of utility maximization.

Answer 1

The equimarginal principle states that consumers will choose a combination of goods to maximize their total utility. The consumer will consider both the marginal utility of goods and the price, that is, the marginal utility of good A equals that of B (MU/price of A=MU/price of B).

The principle assumes that consumers are rational beings, utility can be described in monetary terms, product prices are constant, consumer incomes are constant and goods can be split up into small units.