Question

9. Q = L2 K. Calculate the elasticity of substitution

Answer 1

Q = L²K

Elasticity of substitution ($\alpha$) = $\frac{percentage change in K/L}{percentage change in MRTS}$

% change in K/L: = ${dIn(K/L)}$

MRTS: =$\frac{MPL}{MPK}$

=$\frac{LK}{L^{2}}$

= $\frac{K}{L}$

$\alpha$ = $\frac{dIn(K/L)}{dIn(K/L)}$

$\alpha$ = 1