The utility-maximization condition for two goods is achieved by equating the:
A) prices of both goods.
B) marginal utilities of both goods.
C) ratios of total utility to price of both goods.
D) ratios of marginal utility to price of both goods.

Question

Quizplus · Accepted Answer

The utility-maximization condition is achieved by equating the ratios of marginal utility to price of both goods. This is known as the marginal rate of substitution (MRS), which represents the rate at which a consumer is willing to trade one good for another while maintaining the same level of total utility. Equating the MRS for both goods to the price ratio ensures that the consumer is getting the most utility for their money.

The Utility-Maximization Condition for Two Goods Is Achieved by Equating