"The reason why firms charge a lower price at higher output levels because they are able to spread their fixed costs over a large production run"
This is a true of false question and I would just like to know where i might look to answer this question, i.e. is it something to do with perfect competion or is it regarding short run production??
The answer is false. What level of output do we market economists say a firm operates at? Always, where Marginal cost=Marginal revenue. Always.
Since fixed costs contribute nothing to the calculation of marginal costs, the answer is false.
Hi John, please listen during your lectures next time - even if you don't please read your notes or your textbook. This has nothing to do with perfect competition - and has everything to do with short run production. As you know, fixed costs do not exist in the long run.
Now onto the question, I'm not allowed to give assignment answers so I'll give you a hint. Fixed costs stay the same for the whole of the firm's output. What happens as output increases? What effect does this have on their profits i.e. revenue - costs? It's pretty obvious. :D
Now go back to your assignment.
To answer the question, you need to understand how firms determine their output levels and pricing decisions. In this case, you are specifically looking at the relationship between price, output levels, and fixed costs.
First, consider the concept of marginal cost and marginal revenue. Marginal cost refers to the additional cost incurred by producing one more unit of output, while marginal revenue refers to the additional revenue generated by selling one more unit of output. In a perfectly competitive market, firms aim to maximize their profits by setting their output levels where marginal cost equals marginal revenue.
Now, fixed costs are the costs that remain constant regardless of the level of output. Examples of fixed costs include rent, insurance, salaries, etc. These costs do not change based on the quantity produced.
In this particular statement, it suggests that firms charge a lower price at higher output levels in order to spread their fixed costs over a larger production run. However, this is not accurate because fixed costs do not influence the pricing decisions of firms.
To find the correct answer to this statement, you should refer to your lecture notes, textbook, or any other relevant course material that discusses the relationship between fixed costs, output levels, and pricing decisions in the short run.