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Utility Maximisation

Standard economic theory assumes that people - operating with a limited budget - will buy goods and services with the aim of maximising utility (or satisfaction) from consumption. With a single product, total utility is maximised when marginal utility is zero. When multiple products are being chosen, the condition for maximising utility is that a consumer equalizes the marginal utility per pound spent

The condition for maximising utility is: MUA/PA = MUB/PB (Where: MU is marginal utility and P is price)

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