Read the following statements - Assertion (A) and Reason (R):
Assertion: In the short run, when we change the level of output, whatever change occurs to total cost is entirely due to the change in total variable cost.
Reasoning: In the short run, fixed cost cannot be changed.

From the given alternatives choose the correct one:

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

The correct answer is option 4: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Explanation:

1. Assertion (A): In the short run, when we change the level of output, whatever change occurs to total cost is entirely due to the change in total variable cost. (True)

   • In the short run, Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC).
   • Since TFC remains constant, any change in TC is entirely due to changes in TVC.
   • This means that when output changes, the increase or decrease in TC is only because of TVC.

2. Reason (R): In the short run, fixed cost cannot be changed. (True)

   • Fixed costs (TFC) do not change in the short run, regardless of the level of output.
   • Even if a firm produces more or less, TFC remains constant (e.g., rent, salaries of permanent staff).
3. The reasoning directly explains the assertion.