Explain the utility maximizing rule for two products in words and using algebra

Question

Please provide the best answer for the statement.

Answer 1

Utility maximizing rule explains how a consumer decides to allocate his or her money income so that the last dollar spent on each product purchased yields the same amount of marginal or extra utility. The consumer is in equilibrium when marginal utility per dollar spent on each product is equal. When a consumer is in equilibrium, there is no incentive to change spending on products, unless preferences, income, or prices change. The marginal utility per dollar spent is equalized, which means that a consumer compares the extra utility from each product with its cost. In a two-product case, as long as one product provides more utility per dollar than another, the consumer will buy more of the first product. As more of the first product is purchased, its marginal utility diminishes until the amount of utility per dollar just equals that of the other product. The algebraic statement of this utility-maximizing state is that the consumer will allocate income in such a way for these two products (A and B) such that: MU of A/price of A = MU of B/price of B.