Output elasticity
In economics, output elasticity is the percentage change of output (GDP or revenue for a single firm) divided by the percentage change of an input.
It is calculated as marginal product of an input to its average product. It is a local measure, defined at a point.
Marginal Revenue (MR), also sometimes called incremental revenue, is the change in the Total Revenue divided by the change in the Quantity supplied (QS). (Change in TR/Change in QS).
Total Revenue (TR) is the total amount of revenue gained by a seller; that is, Price X Quantity (PXQ), and is sometimes referred to as Nominal GDP, in current dollar value.
Average Revenue (AR): TR/Q, or the amount of revenue gained by the sale of 1 unit.
Output elasticity is the percentage change in output per one percent change in all inputs. It is an indicator of returns to scale. If the coefficient of output elasticity is greater than 1 the fime is experiencing increasing returns to scale. If the COE is less than 1, the firm is experiencing decreasing returns to scale. If I the firm is experiencing constant returns to scale. Note that a firms returns to scale may change as production changes.[1]
See also
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- ^ Perloff, Microeconomics Theory & Applications with Calculus (Pearson 2008) at 193.