Which of the following best defines rational behavior?
A)Analyzing the total costs of a decision
B)Analyzing the total benefits of a decision
C)Undertaking an activity as long as the total benefit of all activities exceeds the total cost of all activities
D)Undertaking activities whenever the marginal expected benefit exceeds the marginal expected cost
E)Undertaking activities whenever the average expected benefit exceeds the average expected cost

Question

Quizplus · Accepted Answer

Rational behavior involves comparing the expected marginal benefits and costs of an action in order to determine whether or not to undertake it. This means determining whether the additional benefit obtained from one more unit of the activity exceeds the additional cost of that unit. Therefore, option D - Undertaking activities whenever the marginal expected benefit exceeds the marginal expected cost - is the best choice. Options A and B involve analyzing only total costs or benefits, which may not take into account the incremental gains or losses from each unit of activity, leading to suboptimal decision-making. Option C involves comparing total benefits and total costs, but does not account for the marginal benefits and costs, resulting in decisions that may not be efficient. Option E involves comparing the average benefits and costs, which does not take into account the fact that marginal benefits and costs may differ from average benefits and costs, leading to incorrect decisions.

Which of the Following Best Defines Rational Behavior