CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

The long-run average total costs of production curve ______

I. rises as output increases when production experiences economies of scale.
II. is explained by decreasing marginal productivity.
III. passes through the minimum point of each short-run average total cost curve.
IV. is considered to be an envelope curve because each short-run average total cost curve touches it at only one level of output.
A. I, II and IV
B. III and IV
C. IV only
Explanation: Economies of scale cause the LRATC curve to decrease. Long-run costs are not related to marginal productivity. The curve is not tangent to the low points of all SRATC curves.

User Contributed Comments 2

User Comment
jenny The third one is not correct: each short-run curve is tangent to the long-run curve, but does not mean the tangent point is the minimum point. Look at the graph and you will see.
DiscoAfro That is correct. To precise; I, II and III are not correct. There for the answer is C: IV only.
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