Assuming no budget constraints, maximization of total utility when choosing the amounts of two goods to purchase occurs when the ratios of marginal utility divided by price are equal for both goods.

Question

Quizplus · Accepted Answer

This is based on the principle of equi-marginal utility, which states that consumers maximize their total utility when the last dollar spent on each good provides the same level of marginal utility, hence the ratios of marginal utility to price for each good should be equal.

Assuming No Budget Constraints, Maximization of Total Utility When Choosing