Question

The conditions for utility maximization are A. the law of diminishing marginal utility and the affordability rule. B. that the marginal utility per dollar on all goods is equal and the money spent on all goods adds up to the fixed budget. C. the equimarginal rule and the law of diminishing marginal utility. D. that the total utility per dollar on all goods is equal and the money spent on all goods adds up to the fixed budget.

Answer 1

Answer: Option(B) is correct.

Step-by-step explanation:

Correct Option: the marginal utility per dollar on all goods is equal and the money spent on all goods adds up to the fixed budget.

The conditions for utility Maximization states that consumers wants to allocate their income in a way in which every last penny that is spent on each good yields the same amount of additional marginal utility.

We are assumed that consumers are rational and they are trying to get maximum utility from the given money income.