Question

Evaluate the following statement: In the short run, information about a perfectly competitive firm’s fixed costs is needed to determine both the profit-maximizing level of output and the amount of profit earned when producing that level of output. Provide an example of companies that illustrates the discussion. I need the example

Answer 1

This is a false statement. or this is a partially correct statement.

The fixed cost is not taken into account while deciding the level of profit-maximizing output. Only variable cost is considered while making the profit-maximizing decisions.

A fixed cost is incurred by the firm that does not change with change in the level of output. Apart from this, the firm considers the fixed cost when it calculates the total profits.

For example, a farmer has taken the land on the lease, the payment towards the lease is fixed cost. While the seeds and casual labor expenses are variable cost. the cost of the lease would not be counted in the profit-maximizing level of output. But it would be considered while calculating the profit.