CFA Practice Question

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CFA Practice Question

Which of the following statements is true?
A. If marginal cost is decreasing, average total cost must be decreasing.
B. If average total cost is decreasing, marginal cost must be decreasing.
C. If marginal cost is greater than average variable cost, average variable cost must be increasing.
Explanation: This can be easily seen by drawing a set of cost curves. The marginal curve "pulls" the average curves, so if the marginal is greater than the average, the average will rise. If the marginal is less than the average, the average will fall. Neither of the other statements are correct.

User Contributed Comments 8

User Comment
cbb1 The only way "A" is correct is if marginal cost is less than average total cost.
yanpz When MC decreasing, ATC is always decreasing. ATC starts to increase long after MC increasing. So I think A is also correct.
BADGUY look thru the grammer properly.
chuong A: MC can increase while AVC and ATC decrease. The last one is the most correct.
Adas83 Tricky One!
sergashev if MC is decreasing but still higher than ATC, ATC will keep increasing, though at declining growth rate
rjdelong sergashev's logic is the best here
cfakhubi Tricky one.... sergashev view is best here
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