The output elasticity of total cost is equal to:
A)the slope of the isocost line.
B)the ratio of marginal cost to average cost.
C)the ratio of average cost to marginal cost.
D)the ratio of average cost to total cost.

Question

Quizplus · Accepted Answer

The output elasticity of total cost is equal to the ratio of marginal cost to average cost. This is because the elasticity of total cost measures the responsiveness of total cost to changes in output, and the ratio of marginal cost to average cost reflects the degree of economies or diseconomies of scale present in the production process. Specifically, if marginal cost is less than average cost, there are economies of scale and the output elasticity of total cost is greater than 1. If marginal cost is greater than average cost, there are diseconomies of scale and the output elasticity of total cost is less than 1.

The Output Elasticity of Total Cost Is Equal To