Answer :
Answer:
a. True
Explanation:
It is true that a rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost.
There are four principles outline by Gregory Mankiw on how rational people make decision:
- People face trade off: It means that people need to pay some price or give up something to get other things.
- Cost of something is what you give up to get it: While making decision opportunity cost are considered for any possible action taken.
- Rational people think at the margin: Marginal changes are the small changes to the existing plan of action. It is considered rational people take decision by comparing marginal benefit with cost.
- People respond to the incentive: Incentives are important to analyze while take decision on how market work as incentive induces people to act.
It is true that a rational decision maker takes an action only when the marginal benefit exceeds the marginal cost.
In economics, a equilibrium is achieved in any economic model at the point where the marginal cost is equal to marginal benefit.
Hence, for a rational decision-maker, a profit or net-surplus will be maximized when the marginal benefit is at least equal to the marginal cost because the higher the marginal benefit from the cost more will be the profit.
In conclusion, it is true that a rational decision maker takes an action only when the marginal benefit exceeds the marginal cost.
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