Which principle in marginal analysis supports the idea that additional actions should be taken only if the marginal benefit exceeds the marginal cost?

• A. The law of diminishing returns
• B. The principle of opportunity cost
• C. The principle of comparative advantage
• D. The marginal principle

Answer: (D)

Verified step by step guidance

1. Understand that marginal analysis involves comparing the additional benefits and additional costs of a decision or action.
2. Recognize that the principle in question states that an action should be taken only if the marginal benefit (MB) of that action is greater than the marginal cost (MC).
3. Recall that the law of diminishing returns relates to how adding more of one input, holding others constant, eventually yields smaller increases in output, which is a different concept.
4. Note that the principle of opportunity cost involves the value of the next best alternative foregone, which is related but not the specific rule for deciding on additional actions.
5. Identify that the principle of comparative advantage deals with specialization and trade benefits, which is unrelated to the decision rule in marginal analysis; therefore, the correct principle is the marginal principle.