A measure of how quickly the marginal rate of technical substitution of labor for capital changes as we move along an isoquant is the:
A)capital-labor ratio
B)elasticity of substitution
C)input substitution possibility frontier
D)rate of technological progress

Question

Quizplus · Accepted Answer

The elasticity of substitution measures the percentage change in the ratio of capital to labor used in production when the marginal product of capital and labor are equal. Therefore, it indicates the change in the marginal rate of technical substitution of labor for capital as we move along an isoquant. The elasticity of substitution measures the degree of substitutability between two inputs (in this case, labor and capital) and how quickly they can be substituted for each other along an isoquant. A high elasticity of substitution means that the inputs are easily substitutable, while a low elasticity of substitution indicates that they are not very substitutable.

A Measure of How Quickly the Marginal Rate of Technical