Answer to Question #305418 in Microeconomics for Shriram

Question

Why should decision makers set MB equal to MC?

Answer 1

Marginal Benefit (MB) refers to the increment in total benefit caused by additional unit of an activity while Marginal Cost (MC) refers to an increment in total cost caused by additional unit of an activity. In a case where the Marginal Cost (MC) is greater than the Marginal Benefit (MB) (MC>MB) it means that we are spending more on production and obtaining less benefits from that production this can make one to reduce the quantity produced and the amount produced so as to maximize the benefits. Decision makers should set the Marginal Benefit to be equal to the Marginal cost because this is the efficient point where the net benefit is maximized.