The linearity assumption is most likely to be a close approximation for an underlying nonlinear cost function
A) within a relevant range of activity.
B) over the long run.
C) for short-run periods.
D) both a and c.

Question

Quizplus · Accepted Answer

The linearity assumption is most likely to hold within a relevant range of activity, where the cost function is expected to be relatively stable and not exhibit significant nonlinear behavior. The assumption is less likely to hold over the long run, where factors such as capacity utilization and technological change can alter the cost structure, or for short-run periods, where abrupt changes in input costs or output levels may lead to nonlinear cost behavior. Therefore, choice A is the best option.

The Linearity Assumption Is Most Likely to Be a Close