Q.

Capital output ratio of a commodity measures -

A. its per unit cost of production
B. the amount of capital invested per unit of output
C. the ratio of capital depreciation to quantity of output
D. the ratio of working capital employed to quantity of output
Answer» B. the amount of capital invested per unit of output
Explanation: Capital Output Ratio is the ratio of capital used to produce an output over a period of time. This ratio has a tendency to be high when capital is cheap as compared to other inputs. For instance, a country with abundant natural resources can use its resources in lieu of capital to boost its output: hence the resulting capital output ratio is low. The capital output ratio tends to increase if the capital available in a country is cheaper than the other inputs. Therefore, the countries that are rich in natural resources have a low capital output ratio. This is because they can easily substitute the capital with natural resources in order to increase the output. When countries use their natural resources instead of capital then COR reduces.
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