CFA Practice Question

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CFA Practice Question

In a purely competitive market, economic losses indicate that ______

A. the firms in the industry are not minimizing their costs; they should expand output in order to more fully realize the economies of scale in the industry.
B. some firms have miscalculated, producing goods that are less valuable than the resources used to make them.
C. some firms are using unfair tactics to harm others.
Correct Answer: B

Since price reflects the consumers' valuation of the firm's output, a price that is not high enough to cover the firm's costs implies that the value of the output is not high enough to warrant its production given its costs.

User Contributed Comments 7

User Comment
ridone economic loss implies resources are not efficiently allocated.
gmarchesiv can't you have economic losses in the short run?
sunta why not A?
hoyleng Keyword : eco. loss.
Defn of eco loss = producing goods that are less valuable than the resources used to make them
gill15 Sunta - cause you could be already minimizing your ATC and increasing the output would increase your ATC
babycdq A is wrong since it will harm to the company's accounting profit but nothing to do with economics losses.
khalifa92 all wrong
why not A?
A- because one of the characteristics of a competitive market is; they are producing at minimum efficient scale relative to the market.
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