Question

Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs

Answer 1

Rational decision simply means a decision based on logic. It would be logical to say that people would always prefer more benefits than the cost they will be expending. Rational decisions indeed occur when the marginal benefits of an action equal or exceed the marginal costs. No person would make a decision that would incur a loss in his part. Therefore, in order to say that you were able to have a rational decision, you have to bear in mind the profit you can gain out of it. Example of this is the decision on additional worker. Suppose you are paying $20 per worker and they produce 5,000 units. If you are to add additional worker, you will incur an additional $20 but it will also increase the production output to 8,000 units. Therefore, it would be a rational decision to employ another worker since the benefits would exceed the cost.