Equaling Marginal Utility per Dollar of All Goods and Services

In the following we are going to explain a second formula that serves as a guide to people to be able to maximize total utility they can have with any budget, it does not matter how many goods there are go choose from or how much each one costs.

Just to make things easier, we will start out by showing the pertinent version of the formula to make the decision on how to better spend your budget when there are only two goods or services to choose from. Once you have this idea down well, it will be easier to do this with a lot of goods or services at a time.

We will say that the two goods that we need or X and Y, and the prices of each of these fellows is P x for each unit of X and P y for each unit of Y. Their respective marginal utility is of MU x and MU y. the formula we would need would look somewhat like this:

MU x =  MU y

P x        P y

This formula means that if a person has assigned their limited budget in an optimal way between two goods, then for the optimal amount of X and Y, the marginal utilities per dollar are the same for the two goods.

Beginner Money Investing Assigning Money between Goods for Maximum Utility Equaling Marginal Utility per Dollar of All Goods and Services