Certified Supply Chain Professional (CSCP) Practice Exam

What is the key condition for marginal analysis to be considered a wise economic choice?

1. Marginal utility exceeds marginal cost

2. Marginal cost exceeds marginal utility

3. Marginal utility equals marginal revenue

4. Marginal cost equals marginal expense

The correct answer is: Marginal utility exceeds marginal cost

The key condition for marginal analysis to be considered a wise economic choice is that marginal utility exceeds marginal cost. This principle reflects the idea that a consumer or producer will make decisions based on the additional satisfaction or benefit (utility) gained from consuming one more unit of a good or service compared to the additional cost incurred in obtaining that unit. When marginal utility is greater than marginal cost, it indicates that the benefits of consuming or producing that additional unit outweigh the expenses associated with it. This encourages increased consumption or production until marginal utility and marginal cost align, ensuring efficient resource allocation and maximization of overall satisfaction or profit. The other options do not accurately capture the essence of marginal analysis. For instance, if marginal cost exceeds marginal utility, it would suggest that the cost of producing or consuming an additional unit is not justified by the benefits received, leading to a decrease in overall satisfaction or profitability. Similarly, stating that marginal utility equals marginal revenue focuses on revenue generation rather than the balance of utility and cost, while the comparison of marginal cost to marginal expense does not provide the direct economic rationale needed for decision-making related to utility.