Statement I: In this theory, a firm is assumed to be a ruthless profit maximiser, so it produces and sells the amount that maximises its profit.
Statement II: In this theory, a firm is assumed to sell whatever it produces, so ‘output’ and ‘quantity sold’ are used interchangeably.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both Statement I and Statement II are true.
Statement I: In this theory, a firm is assumed to be a ruthless profit maximiser, so it produces and sells the amount that maximises its profit. — True. The theory of the firm rests on the assumption that the firm wants the highest possible profit.
Statement II: In this theory, a firm is assumed to sell whatever it produces, so ‘output’ and ‘quantity sold’ are used interchangeably. — True. Nothing is left unsold, so output equals quantity sold.
NCERT (2026-27): “In the previous chapter, we studied concepts related to a firm’s production function and cost curves. The focus of this chapter is different. … Our answer to this question is by no means simple or uncontroversial. We base our answer on a critical, if somewhat unreasonable, assumption about firm behaviour – a firm, we maintain, is a ruthless profit maximiser. So, the amount that a firm produces and sells in the market is that which maximises its profit. Here, we also assume that the firm sells whatever it produces so that ‘output’ and quantity sold are often used interchangebly.” |