Question

When marginal cost is greater than marginal benefit at the current activity level, the decision maker can increase net benefit by decreasing the activity because:_________

Answer 1

Answer: d. total cost will fall by more than total benefit will fall.

Explanation:

At this point where Marginal benefit is greater than marginal cost, it means that every additional unit produced gives a higher total cost than total benefit.

If activity levels were to be decreased therefore, total cost would fall more than total benefit would fall until a point is reached where total benefit and total cost would be falling at the same rate. This would be the optimal activity point because Marginal cost would be equal to Marginal benefit.