CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Consider resource A, used by firms in two different industries. In Industry 1, the marginal revenue per unit of output is $2.50 and the marginal productivity of resource A is 0.4. In Industry 2, the marginal revenue per unit produced is $5.00 and the marginal productivity of resource A is 0.25. Which of the following statements is true?
A. The market price for resource A is determined by Industry 2 because of its higher marginal revenue per unit produced.
B. The market price for resource A is determined by the marginal revenue product of resource A in Industry 1.
C. The market price for resource A is determined by the marginal revenue product of resource A in Industry 2.
Explanation: The market price for resource A will be determined by the industry willing to pay the highest price for the resource. Each industry would be willing to pay as much as the marginal revenue product of the resource. The marginal revenue product in Industry 1 is (0.4)($2.50) = $1.00. The marginal revenue product of resource A in Industry 2 is (0.25)($5.00) = $1.25. Therefore, the suppliers of resource A will choose to sell their resource to Industry 2 for $1.25.

User Contributed Comments 4

User Comment
arendb What's the difference between option A and C? I had option a.
samlove Option A chooses only the marginal revenue per UNIT, the answer C had the marginal revenue PRODUCT ..thats what I see as the difference
LoweJoseph I picked A as well, gotta read each answer carefully
devleena34 Is there really any difference between option A and C
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