Once a firm reaches a point of diminishing marginal returns:

CFA Level I
#1

Once a firm reaches a point of diminishing marginal returns: a. marginal costs will decrease, causing average total costs to decrease. b. marginal costs will increase, causing average total cost to increase. c. marginal costs will increase, having no effect on average total costs d. marginal costs will increase, but the effect on average total cost will depend on the change in average fixed cost.

#2

B?

#3

I say B

#4

B.

#5

D? MC not yet cross the minimum point of AVC or ATC. right, should be up to AFC.

#6

B for me

#7

B

#8

B or D ?

#9

yeh D looks like the best, but i reckon it should also depend on the change in AVC, because when diminishing marginal returns kick in, thats when the AVC turns upwards (AFC is always decreasing, so i don’t see how it can really depend on AFC)

#10

Bluey 1.8T Wrote: ------------------------------------------------------- > yeh D looks like the best, but i reckon it should > also depend on the change in AVC, because when > diminishing marginal returns kick in, thats when > the AVC turns upwards > > (AFC is always decreasing, so i don’t see how it > can really depend on AFC) AVC is a function of MC. ATC = AVC + AFC We know that AVC is increasing (as MC is increasing), however AFC is decreasing - so the *direction of ATC will depend on whether the decrease in AFC is larger/smaller than the increase in AVC*. So you need to know the change in AFC ==> D

#11

ahhh ok, so the question is, WHERE is the point of diminishing returns? is it the minimum of MC, or the minimum of AVC???

#12

I’m starting to confuse myself here! Diminishing returns means that the output or revenue from one additional unit of input is increasing at decreasing rate. If we look at it as MC is increasing from its minimum, then AVC is still decreasing, so ATC must be decreasing. (answer E) If we look at it as AVC is increasing from its minimum, then ATC should also still be falling, as AVC is increasing slower than AFC is decreasing. (also answer E) If we look at it as ATC is increasing we have it by definition that it must be B. I think this might be a junk question…

#13

siambank, what is the answer?