- 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
At higher levels of output, total cost tends to ______
A. increase at a decreasing rate.
B. increase at an increasing rate.
C. decrease at an increasing rate.
Explanation: At higher levels of output, total cost increases at an increasing rate because of the law of diminishing marginal product, which implies increasing marginal cost.
User Contributed Comments 4
| User | Comment |
|---|---|
| danlan | Is law of diminishing marginal related to cost? |
| aakash1108 | Yes it does - as output increases, the marginal cost for every additonal unit exceeds the previous unit - this implies that the returns (total revenue - cost) on every additional unit (may be positive but) is lesser than the previous unit. - this states the law of Diminishing returns. |
| viannie | TC = fixed cost + variable cost |
| showmethemoney | i must say this is a good one |