the rational rule for sellers says that a seller should sell one more unit of an item if the price is: group of answer choices less than the marginal cost. greater than or equal to the marginal cost. less than the marginal benefit. greater than or equal to the marginal benefit.
The Correct Answer and Explanation is :
The correct answer is: greater than or equal to the marginal cost.
Explanation:
The “rational rule for sellers” in economics is based on the principle that firms or sellers aim to maximize their profits. To do so, a seller must consider the cost of producing additional units of a good (marginal cost) and the revenue gained from selling those units (price received). The decision to sell an additional unit depends on comparing the price to the marginal cost.
Marginal Cost and Price:
- Marginal Cost (MC) refers to the additional cost incurred from producing one more unit of a good or service. This includes factors such as raw materials, labor, and any other variable costs associated with production.
- Price is the amount the seller receives for selling one unit of the good.
The rational rule suggests that a seller will choose to sell an additional unit if the price they can sell the unit for is at least as high as the marginal cost of producing it. This ensures that the seller does not incur a loss on producing that extra unit.
Why “Greater Than or Equal to Marginal Cost” is Correct:
- If the price equals or exceeds the marginal cost, then producing and selling that extra unit adds to the seller’s profit. This is because the revenue from selling that unit (the price) is enough to cover the cost of producing it (the marginal cost).
- If the price is less than the marginal cost, selling the unit would result in a loss. In this case, the seller would not want to sell that additional unit, as it would reduce overall profit.
Other Choices Explained:
- Less than the marginal cost: If the price is lower than the marginal cost, the seller would be losing money on each additional unit sold, so they wouldn’t want to produce and sell it.
- Greater than or equal to the marginal benefit: Marginal benefit refers to the additional satisfaction or utility a consumer gains from consuming an additional unit of the good. This rule is more relevant to buyers, not sellers.
- Less than the marginal benefit: This would apply to buyers’ decisions, not sellers’. Marginal benefit is about consumers’ willingness to pay, not a seller’s decision to produce or sell.
Thus, the key principle is that the price should be at least as great as the marginal cost for a seller to rationally increase production.