CFA Practice Question
In a competitive market equilibrium with firms making zero economic profits, which of the following is INCORRECT?
A. The marginal cost is the lowest marginal cost.
B. The marginal cost equals the average cost.
C. The average cost is the lowest average cost.
Explanation: MC = MR = Price is profit maximization condition. Profit equal to zero implies AC = Price. From that it follows that MC = AC. The last equality would happen at a point where AC is the lowest.
User Contributed Comments 4
| User | Comment |
|---|---|
| ninad123 | Analyst Notes Got this one wrong, MC = AC so B is correct. AC meets MC at minimum and not vice versa |
| leftcoast | ninad...the question says which one is incorrect |
| HolzGe1 | classic! |
| applelee | They even put INCORRECT in CAPITAL!! ...and I ignore it >< |