All else being equal, if the marginal cost of producing an additional unit exceeds the marginal benefit, what should a rational decision-maker do?

• A. Maintain current production level
• B. Decrease production of the good
• C. Ignore marginal analysis and focus on total cost
• D. Increase production of the good

Answer: (B)

Verified step by step guidance

1. Understand the concept of marginal cost (MC) and marginal benefit (MB): Marginal cost is the additional cost incurred from producing one more unit of a good, while marginal benefit is the additional benefit or utility gained from consuming one more unit.
2. Recall the principle of marginal analysis: A rational decision-maker compares marginal benefit and marginal cost to decide whether to increase, decrease, or maintain production.
3. Analyze the condition given: If MC > MB, producing an additional unit costs more than the benefit it provides, meaning it is not efficient to produce that extra unit.
4. Determine the optimal action: Since producing more units adds more cost than benefit, the rational choice is to reduce production to increase overall net benefit.
5. Conclude that maintaining current production or increasing production would not be optimal because it ignores the imbalance where cost exceeds benefit; thus, the decision-maker should decrease production.