In microeconomics, the principle of equi-marginal utility plays a vital role in determining the utility maximizing consumption level for irrational consumer facing a budget constraint. According to the concept of the law of equi-marginal utility or the equi-marginal principal a rational consumer will consume a certain product up to a Become a Study. Try it risk-free for 30 days. Log in. Sign Up.
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This principle is also known the principle of maximum satisfaction. According to this principle, an input should be allocated in such a maimer that the value added by the last unit of input is same in all uses. In this way. The equi-marginal principle can be applied in different areas of management. It is used in budgeting. The objective is to allocate resources where hey are most productive.
It can be used for eliminating waste in useless activities. It can be applied in any discussion of budgeting. The management can accept investments with high rates of return so as to ensure optimum allocation of capital resources.
The equi-marginal principle can also be applied in multiple product pricing. A multi product firm will reach equilibrium when the marginal revenue obtained from a product is equal to that of another product or products. The equi-marginal principle may also be applied in allocating research expenditures. This principle suggests that available resources inputs should be so allocated between the alternative options that the marginal productivity gains MP from the various activities are qualized.
Equi-marginal principle is applied in the allocation of the resource in the way of production. Example a farmer is having different four agricultural farms like. Sugar cane. The above four agricultural farms are in the total 80 acres, each farm in the 20 acres, all together 80 acres. The farmer is having limited 80 employees with him for employing in the four farms for production. In general, 80 employees are divided and employed for four farms evenly as each farm will be allotted with 20 employees.
However, in reality there is no need to allot 20 employees for each farm, because mango farm need less number of employees, whereas paddy farm needs more number of employees. Sugarcane and corn farms require average number of employees. Like shown below. Labour employees. The above table reveals the allocation of the resources labour available with a farmer according to the production nature and requirement. Baumol's Theory of Sales Revenue Maximisation. Marris Growth Maximization Model:.
Opportunity cost principle. Principle of time perspective. Discounting principle. Equi-marginal principle. Meaning of Demand. Law of Demand. Classification of Demand. Demand function. Perfectly Elastic Demand. Perfectly Inelastic Demand. Relatively Elastic Demand. Relatively Inelastic Demand. Unitary Elastic Demand. Problem on PED. Law of Supply. Determinants of supply. Supply Function.
Elasticity of supply. The Model of Supply and Demand equilibrium. Production Analysis. Production Function. Constant Returns to Scale. Increasing Returns to Scale. Decreasing Returns to Scale. Economies of Scale. Dis-economies of Scale. Fixed Cost. Average fixed cost. Variable Cost. Average variable Cost. Total Cost. Average total cost ATC. Marginal Cost MC. Market structures.
Perfect Competition. Definitions In the words of Ferguson, "Law of equi-marginal utility states that to maximise utility, consumers way allocate their limited incomes among goods and services in such a way that the marginal utilities per dollar rupee of expenditure on the last unit of each good purchased will be equal" According to Marshall, "if a person has a thing which he can put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all" Lipsey is of the view that, "The consumer maximising his utility wilt so allocate expenditure between commodities that the utility derived from the last unit of money spent on each is equal" Example: students allocating limited available days for existing subjects during examinations for getting best percentage.
Students may not always allot 2 days for each subject, they may allot more days for hard subject and less days for easy subject to maintain good percentage Example: Equi-marginal principle is applied in the allocation of the resource in the way of production. Example a farmer is having different four agricultural farms like 1. Paddy 2. Mangoes 3. Sugar cane 4. Like shown below Farms.
Explain the equimarginal principle.
Login to subscribe to our premium online courses. If you are not registered with us then please 'create an account'. Link is provided below the login box. The Law of Equi-Marginal Utility is an extension to the law of diminishing marginal utility.
In this course, you will learn all of the major principles of microeconomics normally taught in a quarter or semester course to college undergraduates or MBA students. Perhaps more importantly, you will also learn how to apply these principles to a wide variety of real world situations in both your personal and professional lives. In this way, the Power of Microeconomics will help you prosper in an increasingly competitive environment. Note that this course is a companion to the Power of Macroeconomics. If you take both courses, you will learn all of the major principles normally taught in a year-long introductory economics college course. A very helpful course living up to the reputation of the university, imparting the quality education on the topic.
The equimarginal principle states that consumers allocate their money such that the marginal utility per dollar of each good is the same because this is how they maximize their total utility. Marginal utility is the additional satisfaction derived by a consumer by consuming one additional unit of a good. The law of diminishing marginal utility dictates that the marginal utility decreases with each additional unit consumed. This is where the concept of marginal utility of income becomes relevant. Marginal utility of income is the marginal utility of a good per dollar. Consumers adjust their choices in the descending order of the marginal utility of income i.