CFA Practice Question

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CFA Practice Question

If the firm has economies of scale in the long run, then the long-run average cost curve is ______.

A. upward-sloping
B. horizontal
C. downward-sloping
D. It depends on whether there are diminishing returns.
E. It depends on the minimum efficient scale.
Correct Answer: C

Economies of scale: a proportional increase in inputs results in a more-than-proportional increase in outputs. Thus, average cost per unit must be falling.

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