Which of the following statements is incorrect in relation to the cost function?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → As output increases, total variable cost increases but there is no change in total cost.
In the short run, more output needs more variable inputs. So TVC rises, and since TC = TVC + TFC, TC rises too.
Option (1) To produce any required level of output, the firm, in the short run, can adjust only variable inputs. — True. Fixed inputs cannot change in the short run, so only variable inputs are adjusted.
Option (2) In order to increase the production of output, the firm must employ more of the variable inputs. — True. Fixed inputs stay the same, so more output needs more variable inputs.
Option (3) As output increases, total variable cost increases but there is no change in total cost. — False. TC is TVC plus a constant TFC. When TVC rises, TC also rises by the same amount.
NCERT (2026-27): “3.7.1 Short Run Costs We have previously discussed the short run and the long run. In the short run, some of the factors of production cannot be varied, and therefore, remain fixed. The cost that a firm incurs to employ these fixed inputs is called the total fixed cost (TFC). Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost (TVC). Adding the fixed and the variable costs, we get the total cost (TC) of a firm …” “3.7.1 Short Run Costs … In order to increase the production of output, the firm must employ more of the variable inputs. As a result, total variable cost and total cost will increase. Therefore, as output increases, total variable cost and total cost increase.” |