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.
If the production function contains only one input, then the output elasticity is also an indicator of the degree of returns to scale. If the coefficient of output elasticity is greater than 1, then production is experiencing increasing returns to scale. If the coefficient is less than 1, then production is experiencing decreasing returns to scale. If the coefficient is 1, then production is experiencing constant returns to scale. Note that returns to scale may change as the level of production changes.[1] The returns to scale for the tobacco industry are approximately 51%, This means that a 50% increase in all inputs would produce a 25.5% increase in output.[1]
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