A firm producing positive amount gains by increasing its production. Whether it is true or false?

1 Answer
May 24, 2017

Answer:

FALSE.

Explanation:

As the firm is producing a positive amount, it means the firm is running in profit.

There are two type of costs of the firm, fixed cost and variable cost. A firm making a profit means its marginal cost of prouction is less than or equal to the price, it charges in the market.

As the fixed cost of the firm decreases, although cost of production comes down and profits will go up, as there is no change in marginal cost of production, which depends more on variable cost of production provided its fullcaacity is not reached.

Hence, firm does not gain by increasing production and hence will not produce more.