**Question 34****Question:**If a firm produces zero, its cost must be zero in the short run?**Options:**- True- False**Explanation:**This question addresses the concept of fixed and variable costs in economics. In the short run, a firm may still incur fixed costs (such as rent, salaries, and utilities) even if production is zero, implying that the total cost is not necessarily zero. Hence, understanding the difference between fixed and variable costs is crucial for analyzing this question accurately.In general, the fixed costs remain constant regardless of the level of production, leading to a situation where even with zero output, the firm incurs costs. This makes the answer to the question "False."

The total cost of production can be divided into two components namely fixed cost and variable cost depending upon the nature of the factor input a particular cost is incurred upon. Fixed cost is the value spent on the procurement of fixed factors of production in the absence of which the production activity cannot take place. This component includes expenses on the establishment of the production facility and capital. Variable costs refer to the expenses incurred on variable inputs such as raw material, labor, intermediate goods, supplies, etc. If a firm is producing zero units of a good or service, its variable cost of production would be zero since no variable input will be required to produce a quantity of zero. This doesn't necessarily mean that the total cost of production will be zero in the short run as a firm can exist only when it has a potential capacity secured by investment in fixed factors. In simple terms, a firm incurs fixed costs regardless of the level of production in the short run. Fixed costs dissolve in the long run as fixed factors become variable. Hence, the statement would be false.

Answered: If a firm produce zero, its cost must…

Business

Economics

If a firm produce zero, its cost must be zero in the short run? C True C False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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