CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

A firm's average total cost increases as it increases its output by hiring additional workers. The firm's owners blame the increase in per-unit costs on the law of diminishing marginal productivity. Assume all costs are variable costs. The owner's argument is ______
A. correct because some inputs are fixed in the long-run.
B. correct because marginal productivity must decrease in the short run.
C. incorrect because all inputs are varied in the example.
Explanation: The law of diminishing marginal productivity applies only when some inputs are fixed, but that is not the case in this example.

User Contributed Comments 3

User Comment
mdmorshed Can anyone explain this. Which input needs to be fixed.
hvanwyk In the SHORT run, at least one factor of production is fixed. In the LONG run, quantities of all factors of production can be varied.
poomie83 However in this question all costs are variable therefore the SR or LR does not come into play
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