According to the traditional view, the optimum level of inspection is where the:

• A. total cost of inspection is minimized
• B. marginal cost of inspection equals the marginal benefit of inspection
• C. average cost of inspection equals the average benefit of inspection
• D. marginal benefit of inspection is zero

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'optimum level' in microeconomics, which is typically where the net benefit (benefit minus cost) is maximized.
2. Recall that the marginal cost (MC) is the additional cost incurred from one more unit of inspection, and the marginal benefit (MB) is the additional benefit gained from one more unit of inspection.
3. Recognize that the optimum level occurs where the marginal cost equals the marginal benefit, because if MC < MB, increasing inspection adds more benefit than cost, and if MC > MB, increasing inspection adds more cost than benefit.
4. Note that total cost minimization or average cost equals average benefit are not the criteria for optimum level in this context, as they do not consider incremental changes which are crucial for optimization decisions.
5. Therefore, the key step is to set the equation \(\text{MC} = \text{MB}\) and solve for the level of inspection that satisfies this equality.