- 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
A firm's short-run cost curves will shift upward if there is a ______.
A. technological improvement or an increase in the price of a productive resource
B. technological improvement or a decrease in the price of a productive resource
C. downward shift in total product or an increase in the price of a productive resource
User Contributed Comments 6
| User | Comment |
|---|---|
| DannyZhou | I got this one right by guessing. What does " downward shift in total product" have to do with the short-run cost curve? |
| JepTang | Meaning that for every decline in the total product produced by a given amount of input (both labor and capital) then the cost per product increases. Why? Because the cost of production will be spread out (divided) over a smaller amount of output. In arithmetic terms, your divisor (products) decreased while, either, keeping your numerator constant or higher. |
| jpducros | Why does answer 1 is not correct ? Normally technological improvement has a cost. |
| Dannyl | Technological improvement does have a cost, resulting in the use of more capital (fixed cost) and less labour(variable cost). An increase in the fixed factor and a decrease in the variable factor may increase total costs at low output levels. At high output levels, average total costs generally decrease. |
| hoyleng | thanks dannyl.. |
| nostalgia | the answer is a little odd though, as it mentions a "shift" of the curve, and not a movement along the curve. I believe only changes in technology and the prices of resources can produce shifts in the short run cost curve.. |