A rational person does not act unless:
A The action is ethical.
B The action produces marginal costs that exceed the marginal benefits.
C The action produces marginal benefits that exceed the marginal costs.
D The action generates money for the person.
E None of the above
The correct answer and explanation is :
The correct answer is C: The action produces marginal benefits that exceed the marginal costs.
Explanation:
A rational person, in economic and decision-making theory, is assumed to act in ways that maximize their utility, which can be understood as the satisfaction or benefit they derive from an action. In this context, utility refers to the benefit they perceive as a result of their decision. Rational decision-making involves comparing the expected marginal benefits and marginal costs of an action.
- Marginal Benefit refers to the additional benefit derived from consuming or engaging in one more unit of an activity.
- Marginal Cost refers to the additional cost incurred from consuming or engaging in one more unit of that activity.
Rational people are assumed to make decisions by weighing the marginal benefits against the marginal costs. They will only take an action if the marginal benefit of that action exceeds the marginal cost. If the marginal costs of an action exceed the marginal benefits, the action is considered inefficient and would typically be avoided by a rational person.
Let’s break down the other options:
- A: The action is ethical. While ethics can influence decisions, rationality in an economic sense does not require actions to be ethical, though an ethical person may choose to act ethically. Rationality is based on a cost-benefit analysis rather than ethical considerations alone.
- B: The action produces marginal costs that exceed the marginal benefits. This is the opposite of rational behavior. A rational person would avoid actions where marginal costs exceed marginal benefits because that would lead to a net loss.
- D: The action generates money for the person. While generating money may be a benefit, a rational person may choose actions that are beneficial in terms of utility rather than just monetary gain. Money is one type of benefit but is not the sole factor in decision-making.
- E: None of the above. This is incorrect because C provides the correct and most relevant explanation for rational action.
Thus, a rational person acts when the marginal benefits of an action outweigh the marginal costs, maximizing their overall benefit.