In a market economy, businesses will continue to supply a good or service if the revenues from the sale of the product do not cover the cost of production, since revenues will eventually expand to cover production costs, yielding a profit. True or false?

Question

Josephine Medina

Business

21 November, 19:50

In a market economy, businesses will continue to supply a good or service if the revenues from the sale of the product do not cover the cost of production, since revenues will eventually expand to cover production costs, yielding a profit. True or false?

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Answers (1)

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Mcgee · Answer 1

This is false

Explanation:

Cost of production are those related exclusively for the production of that good or service such as materials, workmanship and general overhead. In a market economy if a company keep selling below cost of production lost money in a single sell and cannot reverse this situation increasing the quantity of goods sell. The soluction is to rise the price if possible or reduce the cost if possible. If neither those two solution can be implemented the company must cease the activities as soos as possible.