Example:If MU1 = 10and P1 = 5Then, MU1/P1 = 10/5 = 2This means that the last dollar spent on x1 gives the consumer a utility of 2 units.WHAT IF THE CONSUMER IS NOT AT THE OPTIMAL CHOICE?Imagine that you have the following:In English this means that:2112MUMUPP>The extra utility obtained fromthe last dollar spent on x1The extra utility obtained fromthe last dollar spent on x2>This is implies that since the consumer gets a bigger bang from the last dollar spenton x1. Therefore, the consumer should consumer more of x1 since it gets moresatisfaction from the last dollar spent. Also, the consumer should consume less of x2because she gets less satisfaction from the last dollar spent on x2.
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