The equi-marginal principle describes how utility-maximizing consumers allocate their expenditure so that the marginal utility from each good is equal. Business managers apply this principle by distributing resources among various projects to achieve equal marginal productivity and maximize profits. An example indicates optimal investment in three projects, resulting in a profit-maximizing expenditure pattern.

1. EQUI-MARGINAL PRINCIPAL
BY: MR. ZUBAIR AHMED- ASSISTANT PROFESSOR (IMS NOIDA)

2.  This principle based on “law of Equi-marginal utility” from theory of consumer behavior.
 This law states that a utility maximizing consumer distributes his consumption expenditure in such a way
so that marginal utility derived from each unit of expenditure on various goods and services is the same.
 Only this pattern of expenditure maximize the utility of consumer.
 Similar principle used by business managers to allocate the resources among alternative uses to
maximize profit while dealing with multiple business activities.
 Available resources (inputs) should be allocated by managers among different projects so that the
marginal productivity from the various projects are equalized.
 e.g- A firm has 100 million of funds to be invested in three projects say A,B,C and each project requires
10 million of expenditure and the marginal productivity(MP) is given in the following table.

3. UNIT OF
EXPENDITURE
PROJECT A (MP) PROJECT B (MP) PROJECT C (MP)
1st 50 40 35
2nd 45 30 30
3rd 35 20 20
4th 20 10 15
5th 10 0 12

4.  In the above table we can see that MP of all the projects equalized as 20 at 4th,3rd,3rd
unit of expenditure in project A,B,C respectively.
 So the profit maximizing pattern of expenditure will be A-40 million, B-30 million, C-30
million.
 This pattern of expenditure ensures profit maximization for business managers.
THANK YOU