- 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
When price is constant, total revenue ______ when the firm increases its output.
B. increases at a decreasing rate
C. increases at a constant rate
A. rises and then falls
B. increases at a decreasing rate
C. increases at a constant rate
Correct Answer: C
Total revenue is an upward-sloping straight line when price is constant. The constant price means that total revenue is increasing at a constant rate.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan | Total revenue=Price*quantity |
| chamad | A is false because the firm may increase quantity |
| Thescholar | The trick here was to notice that the question refers to total revenue and not normal profit |
| thekobe | yes, revenue is related only to output, it does not includes costs, thats the trick |
| choas69 | if you make a mistake here you're learning, keep going. |
| MathLoser | TR = P x Q Example: P =$5 . Q = 10. 5 x 10 = 50. 5 x 11 = 55 (+10%) 5 x 12 = 60 (+9%) 5 x 13 = 65 (+8.3%) 5 x 14 = 70 (+7.69%) I'm lost with this question. |
| 10425406 | the rate is constant because the marginal increase in TR is 5 for every single increase in output/quantity |