If MB grows smaller and MC grows larger as the activity level grows,then:
A) an interior action for which MB = MC is the best choice.
B) net benefit can be increased by increasing the action.
C) net benefit can be increased by decreasing the action.
D) there is no best choice.

Question

Quizplus · Accepted Answer

When MB becomes smaller and MC becomes larger with an increase in activity level, it means that the marginal cost of producing the next unit exceeds the marginal benefit received from it. Thus, to maximize net benefit, an interior action for which MB=MC should be chosen. This is because at this point, the marginal benefit from producing an additional unit is equal to its marginal cost, resulting in maximum net benefit. Therefore, the best choice is to select the action for which MB=MC.

If MB Grows Smaller and MC Grows Larger as the Activity