The Rational Producer. Economic theory predicts that the rational consumer stops consuming the

nth unit of a good or service, e.g., the third cup of coffee, when the marginal utility of consuming that additional unit is lower than its marginal cost. For example, we can predict with a high degree of accuracy that most individuals do not take a second flu shot because we know that the perceived marginal utility or benefit of that additional flu shot is practically zero. Since MB is less than MC, one does not do A, or in this case, one does not take a second dose of the flu vaccine. In this module, we shifted from consumer choice to producer choice. Producers or suppliers of goods and services are also assumed to be rational economic actors. Both profit-seeking and not-for-profit firms produce goods and/or services that the economy or part of the economy consumes. Both types of firms also employ factors of production like labor and capital to produce these goods and services. Again, in your own words, how does economic theory answer these two related producer choice questions?

Why does a producer employ a production input, that is, hire a worker and/or purchase capital, e.g., a snowplow, MRI machine, and fire truck?

How much of that production input will the producer employ or hire? For example, how will the producer decide between (a) hiring the 11th worker and (b) staying at 10 workers or between (a) purchasing the 11th unit of an MRI machine and (b) staying at 10 units? By now, you should be able to recognize the parallels. Marginal analysis (or thinking at the margin) can be applied to both consumer and producer choices. [Hint: You can discuss several economic concepts like marginal revenue product (MRP), price, producer surplus, marginal revenue cost (MRC) here. Use an actual good or service to help you in your discussion.