The Linearity Assumption Is Most Likely to Be a Close

question 144

Multiple Choice

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.

---

Definitions:

Most Efficient Output

The level of production at which a firm or economy can produce goods at the lowest average cost, maximizing efficiency.

Profit-Maximizing

The process by which a company determines the price and output level that returns the highest profit.

Loss-Minimizing

A strategy or position where a firm aims to reduce its losses to the lowest possible level under adverse conditions, often by adjusting production.

Zero Economic Profits

Zero economic profits occur in a competitive equilibrium when firms earn just enough revenue to cover their total costs, including the opportunity costs.