A constant elasticity cost function:
A) takes a form such as $T C = a Q ^ { b } w ^ { e } r ^ { d }$ and is useful in empirical work because it can be converted into a linear form using logarithms.
B) takes a form such as $T C = w L + r K$, where $L$ and $K$ are chosen to minimize cost, and $w$ and $r$ are input prices.
C) takes a form such as $T C = a Q ^ { 2 } + K L$.
D) is given by $T C = A C x Q$.

Question

A constant elasticity cost function: 
A) takes a form such as $T C = a Q ^ { b } w ^ { e } r ^ { d }$ and is useful in empirical work because it can be converted into a linear form using logarithms.
B) takes a form such as $T C = w L + r K$, where $L$ and $K$ are chosen to minimize cost, and $w$ and $r$ are input prices.
C) takes a form such as $T C = a Q ^ { 2 } + K L$.
D) is given by $T C = A C x Q$.

Quizplus · Accepted Answer

A constant elasticity cost function takes the general form of $TC = A \cdot Q^b \cdot K^c \cdot L^d$ where $A$ is a scaling factor, $Q$ is the quantity produced, and $K$ and $L$ are the inputs used in production. A constant elasticity cost function is useful in empirical work because it can be converted into a linear form using logarithms, as shown in answer choice A. Answer choice B represents a simple linear cost function, answer choice C represents a quadratic cost function, and answer choice D represents a linear variable cost function, none of which are constant elasticity cost functions. A constant elasticity cost function takes the form $T C = a Q ^ { b } w ^ { e } r ^ { d }$ with a constant elasticity of substitution between inputs, and it is useful in empirical work because it can be converted into a linear form using logarithms. This allows for estimation of the parameters using linear regression techniques. Option B describes a linear cost function using input prices and minimizing cost, option C describes a quadratic cost function, and option D describes a general form for a total cost function that may or may not have a constant elasticity of substitution.

A Constant Elasticity Cost Function: A) Takes a Form TC=aQbwerdT C = a Q ^ { b } w ^ { e } r ^ { d }TC=aQbwerd

A Constant Elasticity Cost Function:
A) Takes a Form $T C = a Q ^ { b } w ^ { e } r ^ { d }$