- 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
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 |