For a Production Process That Involves Two Inputs, Capital and Labor

question 17

Multiple Choice

For a production process that involves two inputs, capital and labor, the constant elasticity long-run total cost function defined in linear relationship using logarithms is

• A) log TC = log a + b log Q + c log w + d log r
• B) log T = log t + c log Q + a log w + b log r
• C) T = log t + c log Q + a log w + b log r
• D) T = t + cQ + aw + br

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Definitions:

Total Variable Cost

The sum of all costs that vary directly with the level of production or sales volume.

Total Fixed Costs

The combined sum of all costs that do not change with the level of production or sales over a certain period.

Purchase Price Variances

The difference between the actual cost of purchased materials and the expected (or standard) cost, which can indicate efficiency or market condition changes.

Standard Cost

Predetermined cost calculated for the production of a product or performance of a service under normal conditions.