Exam ICWIM Topic 1 Question 153 Discussion
Actual exam question for CISI's ICWIM exam
Question #: 153
Topic #: 1
Question #: 153
Topic #: 1
A manufacturing company has increased its level of output to the point where marginal costs start to exceed average total costs. What does this indicate?
Suggested Answer: D Vote an answer
Marginal cost (MC) is the cost of producing one additional unit of output. When MC exceeds average total cost (ATC), the firm has reached capacity constraints and is experiencing diminishing returns.
* Why is Option D Correct?
* As production increases, bottlenecks occur due to limitations in machinery, labor, or materials.
* This leads to higher variable costs per unit, making further expansion inefficient.
* Why Not Other Options?
* A (Fixed costs fall) # Fixed costs remain constant, only spread over more units.
* B (Market saturation) # Rising costs do not indicate market conditions.
* C (Variable costs negligible) # Variable costs increase, not decrease.
# Reference: Microeconomics - Cost Structures, CISI Wealth & Investment Management.
* Why is Option D Correct?
* As production increases, bottlenecks occur due to limitations in machinery, labor, or materials.
* This leads to higher variable costs per unit, making further expansion inefficient.
* Why Not Other Options?
* A (Fixed costs fall) # Fixed costs remain constant, only spread over more units.
* B (Market saturation) # Rising costs do not indicate market conditions.
* C (Variable costs negligible) # Variable costs increase, not decrease.
# Reference: Microeconomics - Cost Structures, CISI Wealth & Investment Management.
by Murray at May 08, 2025, 11:41 AM
0
0
0
10
Comments
Upvoting a comment with a selected answer will also increase the vote count towards that answer by one. So if you see a comment that you already agree with, you can upvote it instead of posting a new comment.
Report Comment
Commenting
You can sign-up / login (it's free).