Question

What's wrong with the following statement? Managers can determine whether or not production is efficient, without measuring their production costs.

Answer 1

Assessment of cost of production tells about the efficiency of production. A production is said to be at minimum efficient scale when the average total cost is at minimum which is considered as the profit maximising cost. The assessment of cost of production tells whether the cost is decreasing or increasing or at constant so that managers can initiate actions to reduce cost to minimum ATC level. So assessment of cost of production becomes important for managers while deciding on production activities.