What is equi-marginal principle?
Answers
Answer:
The equi-marginal principle states that a consumer will be maximizing his total utility when he allocates his fixed money income in such a way that the utility derived from the last unit of money spent on each good is equal.
Detail:
Equi-marginal principle is one of the widely used concepts in managerial economics. This principle is also known the principle of maximum satisfaction - by allocating available resource to get optimum benefit . This principle provides a basis for maximum utilization of all the inputs of a firm so as to maximize the profitability.
In the practical world, a person may purchase more then one commodity. Let us assume that a consumer purchases two goods A and B. How does a consumer spend his fixed income in purchasing two goods in order to maximize his total utility? The law of equi-marginal utility tells us the way how a person maximizes his total utility.
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