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Illustrate about the elasticity of substitution.
The Elasticity of Substitution:
The technical substitution’s marginal rate measures the slope of an isoquant. As well the elasticity of substitution measures the curvature of an isoquant. More exactly, the elasticity of substitution measures the percentage change within the factor ratio divided through the percentage change into the MRTS, along with output being held fixed. When we let ?(x2/x1) be the change into the factor ratio and ?MRTS be the change within the technical rate of substitution, it can express as follows:
σ = ((?(x2/x1))/(x2/x1))/(?MRTS/MRTS)
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