Why is mb=mc optimal

It is important to recognize that our act of marginal analysis has maximized this benefit. Consider what would happen if we purchased 3 drinks. Note that although total benefit is more than it was previously, net benefit is lower. As a quick rule:. This is why we look at the marginal net benefit of a decision, rather that the total.

We can calculate the marginal net benefit of a decision by subtracting marginal cost from marginal benefit. As long as the marginal net benefit is positive, we should increase our activity! Marginal analysis is an essential concept for everything we learn in economics, because it lies at the core of why we make decisions.

We have just scratched the surface of it now, but will go more in depth in Topic 3. If the marginal cost exceeds the marginal benefit, then the project will decrease the net benefit to society and should be decreased in scope. For example, if the cost of a proposed government program exceeds its benefits, then it would be unwise to undertake it, but if the benefits exceed the cost, then it would be uneconomical, or "wasteful" not to spend on that government program.

What happens if the MB change? Should I wear a Ski Helmet? Multiple Choice Problems. Examples of MB in the following topics: Prices as Information The MB function represents the buyers' evaluations of their marginal benefits. Notice the MB of the 73rd unit to the buyers is P. For all unit of berries, up to and including, the 73rd unit, the MB is greater than the MC.

While the former is a measurement from the consumer side of the equation, the latter is a measurement from the producer side. Companies need to take both concepts into consideration when manufacturing , pricing, and marketing a product.

A marginal benefit is the maximum amount of money a consumer is willing to pay for an additional good or service. The consumer's satisfaction tends to decrease as consumption increases.

The marginal cost, which is directly felt by the producer, is the change in cost when an additional unit of a good or service is produced.

A marginal benefit is a small, but measurable, change in a consumer's advantage if they use an additional unit of a good or service. A marginal benefit usually declines as a consumer decides to consume more of a single good. For example, imagine that a consumer decides she needs a new piece of jewelry for her right hand, and she heads to the mall to purchase a ring.

Another way to think of marginal benefit is to consider the satisfaction that a consumer gets from each subsequent addition. One ring would make the consumer very happy, while a second ring would still make her happy, just not as much.

The lessening of appeal for additional consumption is known as diminishing marginal utility. Marginal benefit is often expressed as the dollar amount the consumer is willing to pay for each purchase. It is the motivation behind such deals offered by stores that include "buy one, get one half off" promotions. Prescription drugs and necessities such as electricity are goods and services that are not subject to the effect of marginal benefits.

On the opposite side of the equation lies the producer of the good or service. Producers consider marginal cost , which is the small but measurable change in the expense to the business if it produces one additional unit. If a company captures economies of scale , the cost to produce a product declines as the company produces more of it. For example, imagine a company makes shoes.