CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

An upward-sloping short-run marginal cost curve shows that ______
A. with a fixed amount of capital, as more and more labor is added, output increases at a decreasing rate, and thus each unit is more expensive than the previous unit.
B. with a fixed amount of labor, as more and more capital is added, output increases at a decreasing rate, and thus each unit is more expensive than the previous unit.
C. with a fixed amount of capital, as more and more labor is added, output decreases, and thus marginal cost increases.
Explanation: In the short run, capital is assumed fixed. As more labor is added, output will increase, but due to diminishing returns it will increase at a decreasing rate. Thus, the next worker costs the same amount but adds less to production, increasing the marginal cost of the last unit and resulting in an upward-sloping marginal cost curve.

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