When is the linearity assumption 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)at lower levels of activity only

Question

Quizplus · Accepted Answer

The linearity assumption is most likely to be a close approximation for an underlying nonlinear cost function within a relevant range of activity. This is because within this range, the cost function may behave in a linear-like manner. Outside this range, the cost function is likely to exhibit more significant deviations from linearity.

When Is the Linearity Assumption Most Likely to Be a Close