CFA Practice Question
If a firm's per-unit costs rise as it produces a larger output, then the firm's ______
A. average fixed cost must be greater than its average variable costs.
B. marginal cost must be greater than its average total cost.
C. average fixed cost must also rise as output is expanded.
Explanation: Average total cost rises whenever marginal cost is greater than average total cost. Therefore, if the firm's average total cost is rising with increasing output, it must be true that marginal cost is greater than average total cost.
User Contributed Comments 2
| User | Comment |
|---|---|
| LIEJON | C could also be right but because of the word "must" C is wrong. |
| mindi | no C is worng, because average fixed cost is falling (at a decreasing rate) as output increases. |