- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 5. Understanding Economies and Diseconomies of Scale
CFA Practice Question
Refer to the graph below. A firm that produces 900 units of output using the plant size associated with SATC3 minimizes ______.
B. long-run average total cost only
C. short-run average total cost only
A. both long-run and short-run average total cost
B. long-run average total cost only
C. short-run average total cost only
Correct Answer: A
At this combination, no change in output or plant size can reduce either long-run or short-run average total cost.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan | Do not understand the meaning of SATC1, SATC2, SATC3 and LATC |
| mike555 | SATC1 is short run Average total Cost LATC is long run Average Total Cost |
| osebeyo | cost is minimized in the long run when short run average total cost equals the long run average total cost at the point where LATC is lowest |
| gullan | LRATC is equal to SRATC only for this particular instance(i.e 900 units of output). For other level of output LRATC and SRATC minimum values will not be same. |
| AUAU | tricky. Y not only longrun. |
| hardig | i think because the LTAC curve is made up of many Short term curves, so the bottom of STAC3 barks both the lowest point of STAC, but also creates the low point on the LTAC curve. |
| dmfz | This should be long run. |