CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

The best characterization of a firm that is operating on its long-run average cost curve is when it ______
A. experiences constant returns to scale.
B. produces a given output at the least possible cost.
C. chooses a plant size that minimizes the average fixed cost.
Explanation: The long-run average cost curve tells the firm the plant size and the quantity of labor to use at each output to minimize cost. Once the plant size is chosen, the firm operates on the short-run cost curves that apply to that plant size. Therefore, the firm is said to be operating on its long-run average cost curve when it is producing a given output at the least possible cost.

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