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Microeconomics II
book

Microeconomics II

by D.N. Dwivedi
August 2011
Intermediate to advanced content levelIntermediate to advanced
368 pages
14h 51m
English
Pearson India
Content preview from Microeconomics II
Product Exhaustion Theorem 259
of substitution depends on the value of σ (i.e., the elasticity of substitution). Suppose σ = 0.5, i.e., σ < 1.
en a 10 per cent increase in w/r will result in a 5 per cent increase in the capital–labour ratio (K/L).
is will alter the relative shares of K and L.
e new relative factor shares can be obtained as
w L
r K
w r
K L
.
.
( / )
( / )
.
( . )
( . )
=
+
+
=
1 0 10
1 0 05
1
..
.
.
( / )
( / )
10
1 05
w r
K L
(12.19)
where (*) denotes the new relative factor share.
Equation (12.19) reveals that
wL
rK
wL
rK
<
It means that new relative factor–share ratio is greater than the initial ratio. By the same reasoning it can ...
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Publisher Resources

ISBN: 9788131797655