2. What can consumers do to maximize their utility? 

3. What is the formula used to assist in a determination of consumer utility maximization? 

Total benefits form the metric “utility” for consumers and total revenue for firms.

Total net benefits, the difference between total benefits and total costs, are maximized at the optimal choice.

Some decisions permit rational agents to look at only marginal benefit and marginal cost. Other decisions cannot be broken down into increments in this way and must be evaluated by looking at total benefits and total costs.

Consumers face constraints and have to make optimal decisions accounting for these constraints.

In a model of rational consumer choice, consumers are assumed to make choices so as to maximize their total utility.

Consumers experience diminishing marginal utility in the consumption of goods and services.

Consumers allocate their limited income to purchase the combination of goods that maximizes their utility by equating/comparing the marginal utility of the last dollar spent on each good.

Marginal analysis involves comparing the additional benefit of increasing a given activity with the additional cost. Comparing marginal benefit (MB) with marginal cost (MC) helps individuals (firms) decide whether to increase, decrease, or maintain their consumption (production) levels.

The optimal quantity at any point in time does not depend on fixed costs (sunk costs) or fixed benefits that have already been determined by past choices.

The optimal quantity is achieved when marginal benefit is equal to marginal cost or where total benefit is maximized.

Explain the opportunity costs associated with choices.

Calculate the opportunity costs associated with choices.

Explain a decision by comparing total benefits and total costs (using a table or a graph when appropriate).

Calculate total benefits and total costs (using a table or graph where appropriate).

Define the key assumptions of consumer choice theory.

Explain (using a table or graph as appropriate) how a rational consumer’s decision making involves the use of marginal benefits and marginal costs.

Calculate (using a table or a graph when appropriate) how a rational consumer’s decision making involves the use of marginal benefits and marginal costs.

Define marginal analysis and related terms.

Explain a decision using marginal analysis (using a table or a graph when appropriate).