Multiple choice

In the Cobb-Douglas production function, the elasticity of substitution between factors is

  1. zero

  2. equal to one

  3. less than one

  4. greater than one
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Cobb-Douglas production function (Y = A·K^α·L^β) has a unitary elasticity of substitution equal to one. This means the percentage change in the capital-labor ratio divided by the percentage change in the marginal rate of technical substitution equals one. This constant unitary elasticity is a defining property that makes Cobb-Douglas analytically tractable.

Keep practicing — related questions