A rational person does not act unless
a. the action makes money for the person.
b. the action is ethical.
c. the action produces marginal costs that exceed marginal benefits.
d. the action produces marginal benefits that exceed marginal costs.
e. None of the above is true.
The correct answer and explanation is :
The correct answer is d. the action produces marginal benefits that exceed marginal costs.
Explanation:
In economic theory, a rational person is typically assumed to act in a way that maximizes their utility, which can be interpreted as the most beneficial outcome given the available information and resources. The principle of marginal analysis is central to understanding rational decision-making.
Marginal analysis involves comparing the additional (or marginal) benefits of an action to its additional (or marginal) costs. A rational decision-maker will weigh these two aspects to determine whether the action will lead to a net positive result.
- Marginal Benefits: These are the additional benefits gained from taking one more unit of action. For example, a person might gain satisfaction, income, or some other form of utility by taking a specific action.
- Marginal Costs: These are the additional costs incurred from taking one more unit of action. These costs could include time, money, or other resources that are given up in the process.
The rational person will only proceed with the action if the marginal benefits exceed the marginal costs. If the marginal costs are greater than the marginal benefits, it would be an irrational decision to proceed because it would result in a net loss.
Let’s break down why the other options are incorrect:
- a. The action makes money for the person: While making money is a common goal, it’s not the only factor in decision-making. A rational person may make a decision that doesn’t directly result in money but maximizes other forms of utility.
- b. The action is ethical: Ethics can influence decisions, but rationality in economic terms is not about ethics. A rational person will weigh the benefits and costs, and ethics may or may not be a consideration.
- c. The action produces marginal costs that exceed marginal benefits: This statement is contradictory to rational decision-making. If marginal costs exceed marginal benefits, the rational person would not act.
Therefore, d is the best choice, as it reflects the principle of rational decision-making: to take an action only if the marginal benefits outweigh the marginal costs.