If the marginal total cost when moving from Option A to Option B is negative and the marginal total cost when moving from Option B to A is positive, which of the two options is better? What is the underlying principal behind the decision?
What will be an ideal response?
A negative marginal total cost implies that the decision maker is gaining from the switch between options. A positive marginal cost implies that the decision maker is losing from the switch between options. In this case, moving to Option B makes the decision maker better off, while moving away from it makes the decision maker worse off. Hence, Option B is better of the two. The underlying principal behind this decision is referred to as the Principal of Optimization at the Margin.
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