Question
The president of the Tacke Corporation believes that statistical research by his staff shows that the firm's long run total cost function curve can be
The president of the Tacke Corporation believes that statistical research by his staff shows that the firm's long run total cost function curve can be represented as TC=oqQ~^1PL~^2PK~^3
Where TC is the firm's total cost, Q is output, PL is the price of labor, PK is the price of capital.
a) Tacke's president says that ~1 measures the elasticity of cost with respect to output, that is the percentage change in total cost resulting from a 1 percent change in output. Is he correct? Why or why not?
b) He also says that is ~1<1, economies of scale are indicated, whereas ~1>1 diseconomies of scale are indicated. Is he correct? Why or why not?
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