ECONOMICS
OPPORTUNITY COST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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ignores marginal changes and focuses instead on “the big picture".
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ignores the likely effects of government policies when he or she makes choices.
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takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
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takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.
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Detailed explanation-1: -A rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost. This principle can explain why airlines are willing to sell a ticket below average cost and why people are willing to pay more for diamonds than for water.
Detailed explanation-2: -This principle suggests that rational people take their decisions by thinking at the margins i.e. by comparing the marginal benefit with the marginal cost and if the marginal benefit is more than the marginal cost – it’s a “Go”, Else “No Go”.
Detailed explanation-3: -To answer that question, the company must analyze the marginal cost and marginal benefit. How much will one more car cost to produce? How much revenue will one more car generate? In economic terms, a rational decision is made when the marginal benefit of an action is greater than or equal to the marginal cost.
Detailed explanation-4: -Answer and Explanation: The correct option is d. The rational decision-making model assumes that an individual can identify all the relevant options in an unbiased manner. To compare different options and select the best one, the rational decision-making model is used.