Topic5_intmicro_optimalchoice_part_2

Topic5_intmicro_optimalchoice_part_2 - Example...

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Example: If MU1 = 10 and P1 = 5 Then, MU1/P1 = 10/5 = 2 This 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: 2 1 1 2 MU MU P P > The extra utility obtained from the last dollar spent on x1 The extra utility obtained from the last dollar spent on x2 > This is implies that since the consumer gets a bigger bang from the last dollar spent on x1. Therefore, the consumer should consumer more of x1 since it gets more satisfaction from the last dollar spent. Also, the consumer should consume less of x2 because she gets less satisfaction from the last dollar spent on x2.
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