Consumption Optimization

Optimal Choice: The best possible bundle set which offers the most acquirable utility given budget constraints etc.
This is found where the indifference curve is tangent to the budget constraint

Optimality
(Mux1/Mux2) = (p1/p2)
Or
(Mux1/p1) = (Mux2/p2)

*Note: (Mux1/Mux2) = Marginal rate of Substitution

Where

good 1 = x1
good 2 = x2
price x1 = p1
price x2 = p2
Marginal Utility x1 = Mux1
Marginal Utility x2 = Mux2

We want the rate at which we would want to trade 1 good for another while remaining indifferent equal to the rate the business will trade 1 good for the other

indifference-curves-three-budget-line.png
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