In the context of factors of production, utilization is defined as the ratio of:

• A. marginal product to average product
• B. actual output to potential output
• C. total cost to total revenue
• D. labor employed to total population

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of utilization in the context of factors of production. Utilization measures how intensively a factor (like labor or capital) is being used relative to its full capacity.
2. Step 2: Recognize that utilization is typically expressed as a ratio comparing actual usage to the maximum possible or potential usage. This helps to assess efficiency or under/over-utilization.
3. Step 3: Analyze each option given: - Marginal product to average product compares productivity measures, not utilization. - Actual output to potential output compares the real production level to the maximum possible, which aligns with utilization. - Total cost to total revenue relates to profitability, not utilization. - Labor employed to total population relates to labor force participation, not utilization.
4. Step 4: Conclude that the correct definition of utilization in this context is the ratio of actual output to potential output, as it directly measures how much of the production capacity is being used.
5. Step 5: Summarize that utilization = \$\frac{\text{Actual Output}}{\text{Potential Output}}\$, which captures the extent to which the factor of production is employed relative to its full capacity.