The president of the Tacke Corporation believes that statistical research by his staff shows that the firm 's long run total cost curve can be represented as TC 0Q1PL2PK3 where TC is the firm 's total cost, Q is its output, PL is the price of labor, and PK is the price of capital a Tacke 's preside...

a The president is correct that a1 is the elasticity of cost with respect to output This can be prov ...

The president of the Tacke Corporation believes that statistical research by his staff shows that the firm's

Question:

The president of the Tacke believes that statistical research by his staff shows that the firm's long-run total cost curve can be represented as
TC = α0Qα1PLα2PKα3
where TC is the firm's total cost, Q is its output, PL is the price of labor, and PK is the price of capital.
a. Tacke's president says that α1 measures the elasticity of cost with respect to output-that is, the percentage change in total cost resulting from a 1% change in output. Is he correct? Why or why not?
b. He also says that if α1 < 1, economies of scale are indicated, whereas if α1 > 1, diseconomies of scale are indicated. Is he correct? Why or why not?
c. According to Tacke's president, the value of α3 can be estimated by regressing log (TC/PK) on log Q and log (PL/PK). Is he correct? Why or why not?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...