Which of the following is a basic assumption that justifies an analysis of the costs of quality in microeconomics?

• A. Quality improvements have no impact on production costs.
• B. All firms always operate at full productive efficiency.
• C. Equality in income distribution is the primary goal of all economic systems.
• D. Resources are scarce and must be allocated efficiently to maximize welfare.

Answer: (D)

Verified step by step guidance

1. Identify the core economic principle relevant to the analysis of costs, which is the concept of scarcity. Scarcity means that resources are limited and cannot satisfy all wants simultaneously.
2. Understand that because resources are scarce, firms must make decisions on how to allocate these resources efficiently to maximize welfare or profit.
3. Recognize that analyzing the costs of quality involves evaluating trade-offs, where improving quality may require additional resources, thus affecting production costs.
4. Note that the assumption 'Resources are scarce and must be allocated efficiently to maximize welfare' underpins the need to analyze costs, including quality costs, to make optimal decisions.
5. Conclude that this assumption justifies the microeconomic analysis of quality costs, as it frames the problem of balancing resource use against benefits gained from quality improvements.