which of the following is a decision that follow the net marginal benefit principle?
The correct answer and explanation is:
Correct Answer:
A decision that follows the net marginal benefit principle is one where the individual continues to take an action as long as the marginal benefit is greater than the marginal cost.
Explanation (300 words):
The net marginal benefit principle is a foundational concept in economics used for rational decision-making. It suggests that a decision-maker should continue to undertake an activity as long as the marginal benefit (MB) of the activity exceeds the marginal cost (MC). Once MB equals MC, the optimal level has been reached, and going beyond that point would result in a net loss.
Let’s break it down:
- Marginal Benefit (MB): This is the additional gain or satisfaction (utility, profit, etc.) received from consuming or producing one more unit of a good or service.
- Marginal Cost (MC): This is the additional cost incurred from consuming or producing one more unit.
The net marginal benefit is MB − MC. When this value is positive, the action should continue. When it becomes negative, it’s no longer beneficial to proceed.
Example:
Imagine a farmer deciding how many acres of land to plant with corn. For each additional acre, the farmer earns revenue (marginal benefit) but also incurs costs for seeds, labor, and water (marginal cost). According to the net marginal benefit principle, the farmer will continue to plant more acres until the additional revenue from planting one more acre is just equal to the additional cost. If the cost of planting an extra acre becomes higher than the revenue it brings in, the farmer should stop.
This principle applies in many daily decisions — for example, how long to study, how many hours to work, or how many units of a product to produce.
By using this principle, individuals and firms ensure they maximize net gains, leading to more efficient use of resources and better outcomes overall.