Incremental Capital Output Ratio (ICOR)

The incremental capital output ratio (ICOR) is a measure of the efficiency with which capital is used in the production process. It is calculated by dividing the change in the value of output by the change in the value of capital.

The ICOR can be used to compare the efficiency of different firms or industries, or to track the efficiency of a firm or industry over time. A high ICOR indicates that a lot of capital is needed to produce a small increase in output, while a low ICOR indicates that a small amount of capital can produce a large increase in output.

The ICOR is also used to estimate the rate of economic growth. In general, a higher ICOR is associated with a lower rate of economic growth. This is because a high ICOR means that a large amount of capital is needed to produce a small increase in output. This means that less output is available for consumption or investment, which slows down the rate of economic growth.

The ICOR is a useful tool for understanding the efficiency of the production process and for estimating the rate of economic growth. However, it is important to note that the ICOR can be affected by a number of factors, including the level of technology, the availability of natural resources, and the quality of the workforce.

In conclusion, the incremental capital output ratio is a measure of the efficiency with which capital is used in the production process. It can be used to compare the efficiency of different firms or industries, or to track the efficiency of a firm or industry over time. The ICOR is also used to estimate the rate of economic growth.