- CFA Exams
- CFA Exam: Level I 2021
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 4. Marginal Returns and Productivity

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**CFA Practice Question**

Refer to the graph below. Within which section(s) of the production function is marginal product decreasing?

B. B

C. B and C

A. A

B. B

C. B and C

Correct Answer: C

The slope of the production function is decreasing in ranges B and C, so marginal product is falling.

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**User Contributed Comments**
12

User |
Comment |
---|---|

chuong |
Why???. Look at B section, TP is increasing at decreasring rate and in C section, TP is decreading at increasing rate. can someone explain??? |

RichWang |
Marginal product is failling in both B and C. It has faillen into negative in C, but that's still failling. |

rana1970 |
look carefully in section B, each additional worker is making comparatively less output, so the answer. look in another way, if we move on the curve upward in section B,the slope of tangential line keep on decreasing and become zero while entering in section C, meaning that marginal output(additional output) is decreasing. |

myzec |
Remember the graph shows total product. The question asks where marginal product is decreasing. Thus we find the change in marginal product by looking at the slope of Total product. When you have no figures you look at the shape of the graph. In section A we have a convex shape indicating the slope is positive ie marginal product is increasing. In section B and C we have a Concave shape indicating that marginal product is decreasing. In both section A and B however we see that Marginal product is positive. Remember we are not looking to see if marginal product is positive or negative we are looking for the slope of marginal product. |

jerylewis |
marginal = SLOPE |

ljamieson |
convex region |

magicchip |
S L O P E !!! |

Jolen |
you have to look at the slope to get marginal product. the graph shows the TP line so it can be confusing... |

zulfi79 |
myzec , makes sense...I like this comments thing with questions. |

erinelize |
Thank you, myzec! |

aragarwal |
myzec thanks |

Huricane74 |
Please correct me if I am wrong, but this is how I interpret the graph: In A, marginal product is increasing, and increasing at an increasing rate. In B, marginal product is increasing, but increasing at a decreasing rate. In C, marginal product is decreasing. |