A rational decision maker takes an action if and only if
A)the average benefit of the action exceeds the average cost.
B)the average cost of the action exceeds the average benefit.
C)the marginal benefit of the action exceeds the marginal cost.
D)the marginal cost of the action exceeds the marginal benefit.

Question

Quizplus · Accepted Answer

A rational decision maker will take an action if the marginal benefit exceeds the marginal cost, as this means that the additional benefit gained from taking the action is worth the additional cost incurred. Choices A and B refer to average benefits and costs, which can sometimes give misleading information if there are significant differences in the benefits and costs among individuals. Choice D is not correct as a decision maker will not take an action if the marginal cost exceeds the marginal benefit.

A Rational Decision Maker Takes an Action If and Only