The Logic of Maximizing Behavior and Maximizing in the Marketplace

Read these sections revisit the concept of marginal costs and benefits within the context of the consumer's (and the firm's) maximizing behavior. The later pages in this section define two new concepts: consumer surplus and producer surplus. Take a moment to read through the stated learning outcomes, which should be your goals as you read through the chapter. Attempt the "Try It" problem for each section.

The Logic of Maximizing Behavior

Key Takeaways

  • Economists assume that decision makers make choices in the way that maximizes the value of some objective.
  • Maximization involves determining the change in total benefit and the change in total cost associated with each unit of an activity. These changes are called marginal benefit and marginal cost, respectively.
  • If the marginal benefit of an activity exceeds the marginal cost, the decision maker will gain by increasing the activity.
  • If the marginal cost of an activity exceeds the marginal benefit, the decision maker will gain by reducing the activity.
  • The area under the marginal benefit curve for an activity gives its total benefit; the area under the marginal cost curve gives the activity's total cost. Net benefit equals total benefit less total cost.
  • The marginal benefit rule tells us that we can maximize the net benefit of any activity by choosing the quantity at which marginal benefit equals marginal cost. At this quantity, the net benefit of the activity is maximized.