Question

1. Since we have unlimited needs and wants but only limited resources, we face trade-offs with each decision. Explain how a rational individual would compare the marginal benefit to the marginal cost when making decisions.

Answer 1

Marginal Benefit = Marginal Cost

Step-by-step explanation:

Rational individual tends to maximise utility, or producers tend to maximise profit - which leads to their utility.

Marginal Benefit & Marginal Benefit are additional Benefit & cost respectively.

He / She should consume at equilibrium point, where Marginal Benefit (Marginal Utility) = Marginal Cost (P). Similarly, Producers produce at equilibrium where Marginal Benefit (Marginal Revenue) = Marginal Cost