What Is Utility Maximization?

Utility is at its peak when consumers are most satisfied. When consumers choose a number of consumer goods, the maximum total utility is achieved when the marginal utility of the unit currency payment of each consumer goods is equal, which is called the utility maximization principle.

What is utility? Utility is consumer satisfaction.

Utility is at its peak when consumers are most satisfied. The consumer's choice of several consumer goods, the

Whether it is a family or a resident, they need to spend money from the market to buy everything they need to meet their needs.

Whether it is buying goods or services, consumers want to buy, provided that they have sufficient money, this prerequisite can be called economic budget conditions in economics. On the one hand, it refers to how much money it takes to buy various consumer goods. On the other hand, it requires a lot of things, but the income is limited, so it is a constraint.

So what do you want to do to spend your limited income so that you can maximize your satisfaction after consumption?

There are many ways to match fixed income, such as buying less luxury goods, buying less snacks, buying less clothes, etc. In short, consumers need to choose the one that is most satisfying to them. Economics refers to this behavior of consumers as maximizing utility .

In summary, it is the maximization of the utility that consumers are seeking under income constraints. ^[2]

The problem of maximizing utility (maximizing utility ), in

If the utility function

Continuous and price

Is positive, then

Is not empty.

Proof :

Is a compact space, so if

It is continuous here, according to Wellstrass's theorem, meaning there is a point

Make the utility function map to its maximum. Certificate completed.

If the consumer always chooses the optimal combination defined above, then

It is called the Marshall demand response. If it has only unique combinations to maximize it, it is called the Marshallian demand function. The relationship between the utility function and Marshall's demand in this utility maximization problem also reflects the relationship between the expenditure function and Hicks' demand in the spending minimization problem.

In practice, consumers may not always choose the optimal combination. For example, this may require consumers to think too much. Bounded rationality is a theory that explains this type of behavior with a satisfying solution-choosing suboptimal but good enough combinations. ^[1]