- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 1. Supply Analysis: Cost, Marginal Return, and Productivity
CFA Practice Question
Refer to the graph below. Within which part of the production function is the firm most likely to operate?
Correct Answer: B
As long as the marginal product of labor is increasing, firms will employ more workers, since output increases at an increasing rate. Firms will never employ workers if their marginal product is negative, since this reduces total output.
User Contributed Comments 3
| User | Comment |
|---|---|
| Oksanata | seems like at A Diminishing marginal returns begin meaning MP is at maximum at A, so why B if MP is declining at this area? |
| gill15 | Think the answer is correct but the solution is wrong. The output is increasing but NOT at an increasing rate for B. |
| abdelaziz | Oksanata: it is B because even though it is decreasing in that area, MP is still positive. |