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CA Foundation · Business Economics · Nature and Scope of Business Economics

Ananya Textiles in Surat finds that its profit-maximising output is where the extra revenue from selling one more metre of cloth exactly equals the extra cost of producing it. Which feature of business economics does this decision-making approach best illustrate?

The correct answer is the use of marginal analysis. Business economics guides managers to expand output until marginal revenue equals marginal cost, so each decision is judged by the additional benefit against the additional cost, which is exactly what Ananya Textiles is doing.

  1. AUse of marginal analysis to take decisionsCorrect
  2. BReliance on positive statements only, ignoring all value judgements
  3. CStudy of aggregate national income determination
  4. DPreference for the accounting concept of historical cost

Explanation

Comparing marginal revenue with marginal cost is the core of marginal analysis, a key tool of business economics for deciding how much to produce. Option B is wrong because business economics is also normative and prescribes courses of action. Option C describes macroeconomics, not a single firm's output decision.

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