Concept explainers
Whether to agree or disagree with the given statements.
Answer to Problem 1.1P
Option (a): Disagree
Option (b): Disagree
Explanation of Solution
Option ‘a’:
A firm which earns a profit in the short run may not necessarily increase its scale of operation in the long run. A firm may expand its production only if it also expects a profit in the long run. If there is no expected positive profit, the firm will not continue its production. Thus, the given statement is disagreed.
Option ‘b’:
The given statement is not true because the firm continues production until the total revenue covers the total variable cost and not the total fixed cost.
Fixed cost: Fixed cost is defined as the cost which is independent of the level of output or production of a firm.
Variable cost: Variable cost is defined as the cost which depends on the level of production or output of a firm.
Marginal cost: Marginal cost is defined as the additional cost that is incurred due to the production of an extra unit of output.
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Chapter 9 Solutions
Principles of Economics (12th Edition)
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