Answer to Question #280359 in Microeconomics for vint

Question

Suppose you are given RM500 each month to spend on meals and sports. Each meal will cost you RM5 and each sport will cost you RM2 per time you spend. Explain with a diagram to show that you have achieve an optimum consumption. Carefully derive the bundle of meals and sports at the optimum consumption point and the intercept points in your diagram. Could you able to obtain a higher optimum consumption point if your budget remains at RM500? Explain.

Answer 1

The optimum consumption occurs at the very best level of utility - and utility is constant along each of the indifference curves (the concave lines). Where the indifference curve is tangent to the budget constraint (Point A), we all know that utility must be maximized. The optimal consumption rule says that when a consumer maximizes utility, the marginal utility per dollar spent must be the identical for all goods and services within the consumption bundle.

Let ,meal be described by  " $m$ and sports as "$s$

The consumption bundle are going to be written as :

5m+2s=500

We use the consumption bundle to draw the graph :

A higher optimum point may well be obtained with the identical budget if the value of things was reduced.