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Question
Which of the following statements are true?
The cost of production will increase if
- The government gives subsidies
- The firm uses obsolete technology
- The price of diesel increases
Options
only (i) and (ii)
only (ii) and (iii)
only (i) and (iii)
All (i), (ii) and (iii)
Solution
only (ii) and (iii)
Explanation:
- The government gives subsidies: This statement is false. Subsidies typically reduce the cost of production because the government is providing financial assistance to the firm.
- The firm uses obsolete technology: This statement is true. Using outdated or inefficient technology can increase the cost of production because it may require more inputs or result in lower productivity.
- The price of diesel increases: This statement is true. An increase in the price of diesel would raise the cost of production, especially for firms that rely on transportation or machinery powered by diesel.
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