- 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
If the average cost of producing 9 sweaters is $6.50 and the marginal cost of producing the 10th sweater is $6.75, then the average cost of producing 10 sweaters will ______.
A. increase
B. decrease
C. increase by 25 cents
Explanation: If marginal cost is greater than average cost, then average cost will increase. In this case, average variable cost will equal $6.53 after the 10th sweater is produced.
User Contributed Comments 6
| User | Comment |
|---|---|
| sivenkova | Why "increase by 25 cents" is not correct? |
| dimanyc | Because it will increase by 0.03 cents, not 0.25 |
| Poorvi | Better explained -> because it increases by 0.025 cents and not 0.25 cents. I made the same mistake, getting the average cost as 6.525, I just checked option with 0.25 cents as the answer. |
| azramirza | From where do we get 0.03? |
| Mariecfa | 9 sweaters X $6.50 = $58.50 $58.50 + $6.75(10th Sweater)=$65.25 $65.25/10 Sweaters = $6.525 $6.525-$6.50=$0.025 round to $0.03 |
| bidisha | Marginal cost PULLS the average cost towards itself. |