Final answer:
The statement is false. On a CVP graph, a profitable company will have a total revenue line that slopes upward, but not steeper than the total cost line. The firm realizes a profit where the total revenue exceeds total costs, with profit maximization occurring at the quantity where this difference is largest.
Step-by-step explanation:
The statement that in a Cost-Volume-Profit (CVP) graph for a profitable company, the total expense line will be steeper than the total revenue line is false. On such a graph, the total revenue line is a straight line that slopes upward, with the slope representing the price of the good. Meanwhile, the total cost line also slopes upward but has some curvature, indicating the presence of fixed costs and the effect of varying costs with increased production levels.
Due to diminishing marginal returns, the total cost curve may become steeper as production increases, but not steeper than the total revenue curve for a profitable company. Profit is represented by the gap between total revenue and total costs. For a company to be profitable, the total revenue line must be above the total cost line at least at some level of output, meaning the total revenue line will have a less steep slope than the total cost line up to the point where profits are maximized.
Profit maximization occurs at the quantity where the difference between total revenue and total cost is greatest. As long as the price of the product is set above average cost, a firm will realize economic profits as demonstrated in the relationship between the total revenue rectangle and the total cost rectangle.