A firm will be successful only if it charges a price that covers total cost and provides some profit margin.

• A. True
• B. False
• C. It depends on demand
• D. Not necessarily

Answer: (A)

The main idea is that a business must earn more from selling its product than it spends to produce it in order to stay in operation and grow. Total cost includes both fixed costs (those that don’t change with how much you produce) and variable costs (those that do). When you set a price, you want revenue to exceed these total costs, leaving a positive profit.

If the price only covers total cost, you break even—no profit to reward the owners or fund future investments. If the price is below total cost, the firm incurs losses and cannot sustain itself over time. Therefore, to be successful in the long run, the price should cover total costs and leave some profit margin. That’s why the statement is true.