Answer to Question #314895 in Microeconomics for lydia

Question

When a firm uses different factors of production or least cost combination the optimum combination of factors is achieved when MPl / Pl =;MPl / Pl. Intuitively explain this statement

Answer 1

The Utility Maximization rule states: consumers decide to allocate their money incomes so that the last dollar spent on each product purchased yields the same amount of extra marginal utility.

If a consumer wants to maximize total utility, for every dollar that they spend, they should spend it on the item which yields the greatest marginal utility per dollar of expenditure.