Which principle of marginal analysis explains how individuals make decisions to maximize benefit and value?

• A. Individuals ignore opportunity costs when making decisions.
• B. Individuals compare marginal benefit to marginal cost and choose the option where marginal benefit exceeds marginal cost.
• C. Individuals always choose the option with the lowest total cost.
• D. Individuals make decisions based solely on average benefit.

Answer: (B)

Verified step by step guidance

1. Understand that marginal analysis is a decision-making tool used in microeconomics to evaluate the additional benefits and costs of a choice.
2. Recognize that individuals aim to maximize their net benefit by comparing the marginal benefit (the additional gain from one more unit of an activity) to the marginal cost (the additional cost of that unit).
3. The principle states that individuals will continue an activity as long as the marginal benefit exceeds the marginal cost, because this increases their overall benefit.
4. If the marginal cost exceeds the marginal benefit, individuals will reduce or stop the activity to avoid losses.
5. Therefore, the decision rule is: choose the option where marginal benefit is greater than marginal cost, which ensures maximizing benefit and value.