In terms of economic optimization, when should a decision-maker stop an activity?

A decision-maker should stop an activity when marginal benefits equal marginal costs because this is the point at which resources are being used most efficiently. In economic terms, marginal benefit refers to the additional benefit gained from consuming or producing one more unit of a good or service, while marginal cost refers to the additional cost incurred from producing or consuming that extra unit.

When marginal benefits are greater than marginal costs, it is beneficial to continue the activity because the additional benefits outweigh the costs incurred. Conversely, if marginal costs exceed marginal benefits, the decision-maker is wasting resources, as the costs of the next unit outweigh the benefits gained from it.

Thus, the optimal decision point occurs when these two elements are equal. At this equilibrium, a decision-maker maximizes net benefits, leading to an optimal allocation of resources and overall efficiency in production or consumption. This principle is foundational in economics, guiding firms and individuals in their decision-making processes.