THE CONCEPTS OF ORIGIN OF UTILITY MAXIMIZATION

            THE CONCEPTS OF ORIGIN OF UTILITY MAXIMIZATION

The Concept of origin refers to the minimum (or smallest) quantity of a commodity which must be consumed before the commodity can yield any satisfaction to the consumer.

 For example, a drop of Coca-cola soft-drink cannot give a reasonable level of satisfaction to someone. There is a minimum quantity of the drink someone must take before he can start deriving satisfaction. This varies with persons, times and places.

 MAXIMIZATION OR MAXIMUM UTILITY

A consumer world want to achieve the greatest amount of satisfaction from the limited resources. available to him.

He can maximize total utility by reducing his expenditure on certain commodities whose increased consumption yields low satisfaction and increase expenditure on others which give him higher level of
satisfaction.

A consumer, therefore, is said to be in equilibrium or maximizes his/her utility when the under listed condition is attained.

MUA  =          MUB   =          MUC   =          MUN

PA                  PB                   PC

OR

MUA  =          PA

MUB  =          PB

Here, MU is the marginal utility of commodities A,B,C and N; and PA, PB, PC ’! PN represent the corresponding prices of the commodities. Thus, utility maximization requires that the ratio of marginal utilities of the last units of the commodities should be equal to the ratio of the prices.

Alternatively, a consumer’s utility is maximized when the marginal utility per amount on a product is equal to the marginal utility per amount spent on any other product. It can be written mathematically as:

Mux = Muv = Muz Px Py Pz

While Mux, Muy and Muz represent the marginal utilities of products x,y,z; Px, Py, Pz represent their prices respectively. In the case of one commodity, a consumer will maximise his utility when Mu of that commodity equals the price of the commodity, e.g. Mux = Px

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