Using Practical Capacity as the Denominator Level Sets the Cost

question 131

True/False

Using practical capacity as the denominator level sets the cost of capacity at the cost of supplying the capacity, regardless of the demand for the capacity.

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Definitions:

Marginal Productivity

The additional output derived from the use of one more unit of a factor of production, holding all other factors constant.

Productive Farmland

Land that is capable of producing a high yield of crops due to its fertility, favorable climate, or efficient management.

Diminishing Returns

The principle that as an increasing amount of one factor of production is employed, holding all other factors constant, the additional output generated will eventually decrease.

Marginal Productivity

Marginal productivity refers to the extra output, income, or benefit derived from using an additional unit of a variable factor of production, holding all other inputs constant.