In the case of a firm’s choices in production, for example, the total benefit of production is the revenue a firm receives from selling the product the total cost is the opportunity cost the firm incurs by producing it. The specific measures of benefit and cost vary with the kind of choice being made. We assume that given these benefits and costs, consumers and firms will make choices that maximize the net benefit of each activity-the total benefit of the activity minus its opportunity cost. The activities of consumers and firms have benefits, and they also have opportunity costs. People may not consciously seek to maximize anything, but they behave as though they do. What economists do argue is that people’s behavior is broadly consistent with such a model. In using such a model, economists do not assume that people actually go through the calculations we will describe. Our model assumes that individuals make choices in a way that achieves a maximum value for some clearly defined objective. As we explore its implications, however, we must keep in mind the distinction between models and the real world. The assumption of maximizing behavior lies at the heart of economic analysis. The costs involved in this concept of economic profit are computed in the economic sense-as the opportunity costs, or value of the best opportunity forgone. We assume that consumers seek to maximize utility and that firms seek to maximize economic profit, which is the difference between total revenue and total cost. Economists pay special attention to two groups of maximizers: consumers and firms. A sprinter might want to maximize his or her speed a politician might want to maximize the probability that he or she will win the next election. To say that individuals maximize is to say that they pick some objective and then seek to maximize its value. Explain and illustrate the concepts of marginal benefit and marginal cost and apply them to understanding the marginal decision rule.Explain the maximization assumption that economists make in explaining the behavior of consumers and firms.
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