Final answer:
The correct statement about the relevant range is that linear estimates of an economist's curvilinear cost function are only valid within this range. The relevant range is important for accurate budgeting and cost prediction. Costs outside this range are less predictable due to potential changes in cost behavior.
Step-by-step explanation:
This means that within the relevant range, cost behavior is assumed to be approximately linear, which simplifies analysis and forecasting. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question.
Understanding the relevant range is crucial for firms because it helps in budgeting and predicting costs based on changes in activity or volume. The moment a firm goes above or below this range, the fixed costs structure may change, and the variable costs per unit may no longer remain constant, making historical cost patterns an unreliable predictor for future costs.
For example, within the relevant range, a firm's total costs will consist of fixed costs and variable costs that are stable per unit. If the firm operates below this level, it may not be fully utilizing its resources, leading to higher average costs. Similarly, if the firm operates above this level, it may incur overtime labor rates or need to invest in more capital, which would also drive average costs higher.
The statement that is TRUE about the relevant range is: d. Linear estimates of an economist's curvilinear cost function is only valid within the relevant range.