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### Utility Maximization

• Utility deals with the total benefit an individual receives whereas marginal utility has to do with the benefit an additional item gives
• Marginal utility per dollar is the marginal utility of a good divided by the price of the good (MUx/Px)
• Most items face diminishing marginal utility – as you consume more and more items, the marginal utility decreases (or, the total utility increases and a decreasing rate)
• In order to find the optimal consumption bundle, you set the marginal utility per dollar of two items equal to each other. (MUx/Px = MUy/Py).
• Whatever item has a higher marginal utility per dollar is the item that a rational consumer will decide to consume
• Ultimately, utility maximization is what people naturally do because everything is scarce and we must therefore make choices with limited resources (money, in this case).

### Utility Maximization

Lecture Slides are screen-captured images of important points in the lecture. Students can download and print out these lecture slide images to do practice problems as well as take notes while watching the lecture.

• Intro 0:00
• Lesson Overview 0:14
• I. Basic Economic Concepts 0:47
• Utility vs. Marginal Utility 2:18
• Utility
• Marginal Utility
• Examples
• Marginal Utility Per Dollar 4:07
• Definition of Marginal Utility Per Dollar
• Constrained by a Budget
• Role of Scarcity
• Diminishing Marginal Utility 7:20
• Definition of Diminishing Marginal Utility
• Krispy Kreme Experiment
• Optimal Consumption Bundle 9:59
• Optimal Consumption Bundle Rule
• Select the Higher Marginal Utility Per Dollar
• Value Begins to Fall
• Example 1 11:04
• Example 2 14:15
• Example 3 18:16
• Example 4 21:13
• Example 5 24:09
• Example 6 27:50