Cost complementarity exists in a multiproduct cost function when:
A) the average cost of producing one output is reduced when the output of another product is increased.
B) the average cost of producing one output is increased when the output of another product is increased.
C) the marginal cost of producing one output is increased when the output of another product is decreased.
D) the marginal cost of producing one output is reduced when the output of another product is increased.

Question

Quizplus · Accepted Answer

Cost complementarity indicates that increasing the output of one product reduces the marginal cost of producing another product. Therefore, the correct choice is D, which states that the marginal cost of producing one output is reduced when the output of another product is increased.

Cost Complementarity Exists in a Multiproduct Cost Function When