CFA Practice Question

CFA Practice Question

Which of the following is a plausible reason for average cost initially declining as number of units produced is increased?
A. Fixed costs are distributed over a larger number of product units.
B. Marginal Product initially falling when number of input units rise from a low level.
C. Diminishing returns to scale.
Explanation: Marginal Product initially rising when number of input units rise from a low level is a plausible reason. Diminishing returns to scale should cause average cost to rise.

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