Maximizing Total Utility

The consumer’s objective is to allocate the available budget in a manner that will maximize total utility. In order to achieve this goal, the consumer must choose the most reasonably priced combination of goods at which the total of the utilities acquired from all goods consumed is as big as feasible. In order to be able to find the best budget allocation for the consumer, we can use the utility maximizing rule, which consists of two things; allocating the full amount of the accessible budget and making the marginal utility per dollar equivalent for all of the goods.

To allocate the full amount of the available budget you have to come up with combinations that reach the entire available budget. You want to maximize total utility because you want to get the most for your dollar when you are facing scarcity. You do not have to literally use your entire amount of money on purchases, allocating a budget can involve saving money as well. You can decide the amount of money you want to save, and spend the rest on goods. Equalizing the marginal utility per dollar can be achieved by creating a combination that formulates the marginal utility per dollar equivalent for both of the goods. Marginal utility per dollar is the marginal utility from a good matched to the cost of the good. You are able to calculate the marginal utility per dollar by dividing the marginal utility of a good by the price of that good. In order to be able to find the utility maximizing choice, you calculate the marginal utility per dollar for only the most reasonable priced combinations that deplete your entire budget.