Asked May 14, 2019

Derive the elasticity of substitution for the Cobb-Douglas production Fonction.

f(L,K) = ALαKβ

check_circleExpert Solution
Step 1

Elasticity of substitution measures the responsiveness of change in MRTS (Marginal Rate of Technical Substitution) to input ratio (K/L).

MRTS (Marginal Rate of Technical Substitution) measures the rate at which one factor can be substituted for another to yield the same level of output. MRTS is the slope of isoquant.

We are given the Cobb-Douglas production function as follows:

Step 2

The formula for calculating elasticity of substitution (σ) is as follows:

Step 3

The MRTS for the given Cobb-Douglas produc...


Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour*

See Solution
*Response times may vary by subject and question
Tagged in



Related Economics Q&A

Find answers to questions asked by student like you

Show more Q&A add

Q: How does an increase in the money supply get into the hands of consumers? What do they do with it?

A: The total stock of currency and liquid form of instruments circulating in a nation at a particular p...


Q: Donna and Jim are two consumers purchasing strawberries and chocolate. Jim’s utility function is U(x...

A: Budget constraint is given below.


Q: 7) Explain the slopes of the supply and demand curves in the federal funds market.  Show and explain...

A: Federal fund rate: It is the interest rate at which banks and other depository institutions lend to ...


Q: All but which one of the following is a constraint on a deposit creation by the banking system ? Giv...

A: Banking system:Banking system refers to the process of accepting deposits from the general public fo...


Q: (Table: Calculating GDP) Using the information in the table Calculating GDP, which is the correct ca...

A: GDP (Gross Domestic Product) of a country is the final value of all goods and services produced/ sol...


Q: What is the value of the monetary base, given that the value of deposits at all depository instituti...

A:  Monetary base:Monetary base can be calculated as follows:


Q: Why are perfectly competitive markets considered economically efficient?

A: There are several forms of the market that exists in the real world out of which perfect competition...


Q: 9. True or false? If the statement is false, explain why: LO4 a. An internally held public debt is l...

A: a. The given statement is true in the case of nation debt held internally with specific amount. IF t...


Q: Does the fact that your bank keeps only a fraction of your account balance in reserve worry you? Why...

A: Step 1The bank is a financial institution that focuses on accepting the deposit and making progress ...