Which of the following statements about a firm is NOT correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The objective of a firm is assumed to be producing the maximum output, whatever the profit.
A firm is assumed to aim at the maximum profit, not the maximum output.
Option (1) The objective of a firm is assumed to be producing the maximum output, whatever the profit. — False. The objective is the maximum profit the firm can earn.
Option (2) A firm earns revenue by selling its output in the market. — True. Once output is produced, the firm sells it and earns revenue.
Option (3) The difference between the revenue and the cost of a firm is its profit. — True. Profit is revenue minus cost.
Option (4) The payment a firm makes to acquire its inputs is called the cost of production. — True. Paying for inputs is the cost of production.
NCERT (2026-27): “A Firm Effort … We make certain simplifying assumptions to start with. Production is instantaneous: in our very simple model of production no time elapses between the combination of the inputs and the production of the output. We also tend to use the terms production and supply synonymously and often interchangeably. In order to acquire inputs a firm has to pay for them. This is called the cost of production. Once output has been produced, the firm sell it in the market and earns revenue. The difference between the revenue and cost is called the firm’s profit. We assume that the objective of a firm is to earn the maximum profit that it can.” |