Question

if marginal utility is increasing forever, does the equal marginal principle hold at the optimum? how would the consumer consume in this case

Answer 1

Equli marginal principle states that consumer will choose a combination of goods to maximise their total utility.

As per this principle consumer will cosider both the marginal utility of goods and the price .

When -

Marginal utility of A / price of A = marginal utility of B/ Price of B

This concept is known as maximum satisfaction concept.if marginal utility is increasing forever then consumer will adopt that good which has higher marginal utility of consuming that good.

As per this concept to maximise utility consumer way allocated their limited income among good and services in such a way that the marginal utility per rupees of expenditure on last unit of each good purchased will be equal.