Assertion: Total Fixed Cost (TFC) is the cost that a firm incurs to employ some of the factors of production which are fixed and cannot be varied in the short term and long term.
Reasoning: Whatever amount of output the firm produces, Total Fixed Cost remains fixed for the firm.
Answer & explanation
Correct answer: option 4
The correct answer is option 4: Assertion (A) is not true but Reasoning (R) is correct.
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Assertion (A) is incorrect:
- Total Fixed Cost (TFC) refers to the cost incurred on fixed factors of production that cannot be changed in the short run (e.g., rent, salaries of permanent staff, machinery, etc.).
- However, in the long run, all factors become variable, meaning there are no fixed costs in the long run.
- Since the assertion states that fixed costs exist even in the long term, it is incorrect.
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Reasoning (R) is correct: TFC remains constant in the short run, regardless of the level of output. Even if the firm produces nothing, it still incurs fixed costs.