Which of the following statements best illustrates a positive economic analysis regarding the capabilities of a firm?

• A. A firm can increase its output by hiring more workers, holding other inputs constant.
• B. Firms ought to reduce pollution to protect the environment.
• C. It is unfair that some firms have more resources than others.
• D. A firm should pay higher wages to improve worker morale.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the difference between positive and normative economic statements. Positive economics deals with objective, testable statements about how the economy works, while normative economics involves subjective opinions about what ought to be done.
2. Step 2: Identify the nature of each statement. For example, statements that describe cause-effect relationships or factual claims are positive, whereas statements expressing judgments or recommendations are normative.
3. Step 3: Analyze the statement 'A firm can increase its output by hiring more workers, holding other inputs constant.' This is a factual claim about production capabilities and can be tested or verified, making it a positive economic statement.
4. Step 4: Contrast this with other statements such as 'Firms ought to reduce pollution to protect the environment,' which is normative because it expresses a value judgment about what firms should do.
5. Step 5: Conclude that the statement about increasing output by hiring more workers is the best example of positive economic analysis because it focuses on an objective, testable relationship without expressing an opinion.