Question

Given below are two statements:
Statement (I): Fixed cost is increased when production is increased.
Statement (II): Price discrimination is possible under monopoly situation only.
In light of the above statements, choose the most appropriate answer from the options given below:

• A. Both Statement (I) and Statement (II) are true.
• B. Both Statement (I) and Statement (II) are false.
• C. Statement (I) is true but Statement (II) is false.
• D. Statement (I) is false but Statement (II) is true.

Hint:

By definition, Fixed Costs remain constant regardless of the volume of production in the short run.
Thus, Statement I is definitely false, which instantly leads to the correct option.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
This question analyzes short-run cost structures and pricing strategies under different market forms in microeconomics.

Step 2: Detailed Explanation:
Let us evaluate both statements:
- Statement (I): In the short run, total costs are divided into fixed costs (FC) and variable costs (VC).
Fixed costs are expenses that do not vary with the level of output (such as rent, machinery, or permanent salaries).
Therefore, fixed costs remain constant as production increases, making Statement (I) false.
- Statement (II): Price discrimination is the practice of selling the same product to different consumers at different prices.
For price discrimination to occur, the firm must have market power to set prices and prevent arbitrage.
Under classical economic models, pure price discrimination requires a monopoly situation where the seller is the sole provider and can segment the market.
Thus, Statement (II) is considered true in classical microeconomic models.
Therefore, Statement (I) is false but Statement (II) is true.

Step 3: Final Answer:
Statement (I) is false but Statement (II) is true, corresponding to option 4.