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 is equal to MC, the net benefit is maximized. This is because at this point, the cost of pursuing the activity is exactly equal to the benefit gained from it. If the action is increased, MC will exceed MB and cause a decrease in net benefit. Similarly, if the action is decreased, MB will exceed MC and decrease net benefit. Therefore, the best choice is the interior action where MB is equal to MC.

If MB Grows Smaller and MC Grows Larger as the Activity