Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficients of the log of the wage and the log of capital in this function should:
A)add up to one.
B)be negative.
C)be of opposite sign.
D)of indeterminate sign.

Question

Quizplus · Accepted Answer

The coefficients of the log of the wage and the log of capital in a constant elasticity total cost function should add up to one. This is because, in the long run, the production function exhibits constant returns to scale, implying that doubling all inputs will double output, and the cost function reflects this property through its coefficients.

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