- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 3. Marginal Revenue, Marginal Cost and Profit Maximization
CFA Practice Question
If marginal cost is increasing but is less than average total cost, what do we know about average total cost?
A. Average total cost is increasing.
B. Average total cost is decreasing.
C. Either of these statements could be true.
Explanation: If marginal cost, the change in total cost divided by the change in quantity, is less than average total cost, the average must decrease. The fact that marginal cost is increasing is irrelevant; as long as the change is smaller than the average, the average must fall.
User Contributed Comments 1
| User | Comment |
|---|---|
| chuong | MC is under the ATC -> ATC alway decrease regardless MC increase or decrease MC is above the ATC -> ATC increase while MC increase |