Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficient of the log of output in this function is interpreted as the:
A)average cost.
B)marginal cost.
C)output elasticity of total cost.
D)cost driver.

Question

Quizplus · Accepted Answer

The coefficient of the log of output in the constant elasticity total cost function is the output elasticity of total cost. This elasticity measures the percentage change in total cost resulting from a 1% change in output. It is a measure of the firm's ability to adjust its costs as output changes in the long run. It is not the average cost or the marginal cost, which are different concepts in the theory of firm's costs. The cost driver is a general term used to refer to any variable that affects the cost of production, such as labor, capital, technology, etc. The coefficient of the log of output in a constant elasticity total cost function represents the output elasticity of total cost, which indicates the percentage change in total cost that results from a 1% change in output. It is not directly related to marginal cost or average cost, although it may influence them indirectly. It is also not a cost driver, which refers to a factor that affects the level of costs but is not a direct input in the cost function.

Let a Firm's Long Run Total Cost Be Described by the Constant