- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 3. Marginal Revenue, Marginal Cost and Profit Maximization
CFA Practice Question
Which statement(s) is (are) true?
II. Where AVC is rising, MC is above AVC.
III. At the minimum AVC, MC equals AVC.
I. Where AVC is falling, MC is below AVC.
II. Where AVC is rising, MC is above AVC.
III. At the minimum AVC, MC equals AVC.
Correct Answer: I, II and III
User Contributed Comments 5
| User | Comment |
|---|---|
| bdaguy | I'm not sure why (I) is included here. At low levels of production, AFC is very high which means that MC is also very high and may exceed AVC. |
| bdaguy | Ignore my comments. Fixed costs do not contribute to MC as each new unit is produced. |
| Mariecfa | MC intersects AVC at its minimum point. The intersection comes from below, which MC is less than AVC, respectively, AVC is decreasing. Also when MC exceeds AVC, respectively, AVC is increasing. |
| DonAnd | Take a look at the cost curve diagram in the notes...it makes it all clearer |
| choas69 | the trick is to remember (lll) where at minimum of AVC, MC crosses from below to above. |