for two commodities A and B, MA and MB are the respective marginal utilities while PA and PB are the respective prices. Marginal utilities of the commoditie...

Answer Details

Marginal utility is the additional satisfaction obtained from consuming an additional unit of a commodity. The marginal utility of a commodity depends on the price of the commodity and the marginal utility of the other commodities. To maximize the total utility, the consumer needs to allocate their income between the two commodities in such a way that the marginal utility per unit of money spent on each commodity is equal. Therefore, the marginal utilities of two commodities, A and B, are maximized when the ratio of the marginal utility to the price of each commodity is equal: MA/PA = MB/PB This is known as the condition of consumer equilibrium, and it ensures that the consumer is allocating their income in the most efficient way possible to maximize total utility. Any other ratio of marginal utility to price for the two commodities will result in a lower total utility.