Assertion: The minimum level of profit that is needed to keep a firm in the existing business is defined as break even profit.
Reasoning: The point on the supply curve at which a firm earns only normal profit is called the break-even point of the firm.
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: Assertion (A) is not true but Reasoning (R) is correct.
Assertion: The minimum level of profit that is needed to keep a firm in the existing business is defined as break even profit. This is false. The minimum level of profit that is needed to keep a firm in the existing business is defined as normal profit (not break even profit). "Break-even" refers to the point where Total Revenue equals Total Cost ($TR = TC$), meaning the firm is covering all its costs (including the normal profit), resulting in zero economic profit.
Reasoning: The point on the supply curve at which a firm earns only normal profit is called the break-even point of the firm. This is correct.
- The break-even point is the point on the supply curve where the firm earns only normal profit, meaning Total Revenue (TR) = Total Cost (TC).
- At this point, the firm just covers its total costs (including opportunity costs) but does not make excess profit.