Practice question · Multiple choice
At the optimum, . Why must the ratios be equal rather than the marginal utilities themselves?
Hints
- Suppose gives twice the utility per euro. What should you do?
- The comparison has to be per unit of the thing you are spending.
Show the answer
A. Because what matters is utility per euro spent
Why
Equalising bang-per-buck is the condition for no profitable reallocation remaining. Comparing raw marginal utilities ignores what each costs to obtain.
Practise Utility Maximization
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