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Finding (,) is the utility maximization problem. If u is continuous and no commodities are free of charge, then x ( p , I ) {\displaystyle x(p,I)} exists, [ 4 ] but it is not necessarily unique. If the preferences of the consumer are complete, transitive and strictly convex then the demand of the consumer contains a unique maximiser for all ...
This is a corner solution as the highest possible IC (IC 2) intersects the budget line at one of the intercepts (x-intercept). [1] In mathematics and economics, a corner solution is a special solution to an agent's maximization problem in which the quantity of one of the arguments in the maximized function is zero. In non-technical terms, a ...
In microeconomics, the utility maximization problem and its dual problem, the expenditure minimization problem, are economic optimization problems. Insofar as they behave consistently, consumers are assumed to maximize their utility, while firms are usually assumed to maximize their profit.
The problem of finding the optimal decision is a mathematical optimization problem. In practice, few people verify that their decisions are optimal, but instead use heuristics and rules of thumb to make decisions that are "good enough"—that is, they engage in satisficing .
It is a solution to the utility maximization problem of how the consumer can maximize their utility for given income and prices. A synonymous term is uncompensated demand function , because when the price rises the consumer is not compensated with higher nominal income for the fall in their real income, unlike in the Hicksian demand function .
The utility maximization problem is a constrained optimization problem in which an individual seeks to maximize utility subject to a budget constraint. Economists use the extreme value theorem to guarantee that a solution to the utility maximization problem exists. That is, since the budget constraint is both bounded and closed, a solution to ...
In philosophy, Pascal's mugging is a thought experiment demonstrating a problem in expected utility maximization. A rational agent should choose actions whose outcomes, when weighted by their probability, have higher utility. But some very unlikely outcomes may have very great utilities, and these utilities can grow faster than the probability ...
In many models in mathematical economics such as general equilibrium models, consumer behavior is implemented as utility maximization and firm behavior as profit maximization, both entities being subject to constraints such as budget constraints and production constraints. The usual way to determine an optimal solution is achieved by maximizing ...