Question

elasticity of substitution 10. Compared to isoquant Qı, production for isoquant Q2 has the and the elasticity of labor demand. a. lower; lower b. higher; higher c. higher; lower d. lower; higher

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Answer 1

Compared to iso quant Q1,the production for iso quant Q2 has the higher elasticity of substitution. The less curved the iso quant is , the more is the resulting change in the factor proportions and therefore the elasticity of substitution is higher for less curved iso quants.

The labor demand will be more elastic when a firm can quickly and easily substitute between labor and capital. So higher the elasticity of substitution, higher is the ease with which a firm can substitute between labor and capital and thereby a higher elasticity of labor demand

Thus option b higher,higher is the right answer for the question