CFA Practice Question

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CFA Practice Question

Which statement(s) is (are) true?

I. Where AVC is falling, MC is below AVC.
II. Where AVC is rising, MC is above AVC.
III. At the minimum AVC, MC equals AVC.
Correct Answer: I, II and III

User Contributed Comments 5

User Comment
bdaguy I'm not sure why (I) is included here. At low levels of production, AFC is very high which means that MC is also very high and may exceed AVC.
bdaguy Ignore my comments. Fixed costs do not contribute to MC as each new unit is produced.
Mariecfa MC intersects AVC at its minimum point. The intersection comes from below, which MC is less than AVC, respectively, AVC is decreasing. Also when MC exceeds AVC, respectively, AVC is increasing.
DonAnd Take a look at the cost curve diagram in the makes it all clearer
choas69 the trick is to remember (lll) where at minimum of AVC, MC crosses from below to above.
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