- 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
Diminishing returns cause which of the following costs to eventually increase?
A. Total cost
B. Average variable cost
C. Average fixed cost
User Contributed Comments 7
| User | Comment |
|---|---|
| azramirza | Bcuz its a short run concept |
| jpducros | Wouldn't total cost also increase ? |
| azramirza | Will effect ATC and not total cost.. |
| dini85 | Fixed cost will eventually reduce when the quantity increases... Variable cost decides the diminishing return..Even when quantity increases after certain level VC will increase thats diminishing return.. |
| GouldenOne | I have no clue how returns have anything to do with variable cost |
| bidisha | No clue Get a clue I need to too |
| gill15 | To all...this is where you are confused... Notice the wording -- what will cause it to EVENTUALLY increase Yes total cost is increasing but it is ALWAYS increasing. AVC and ATC is decreasing first and then eventually increases due to diminishing marginal returns. |