The correct answer is: A. Equal to 1.
The Cobb-Douglas production function is a mathematical function that describes the relationship between the inputs (capital and labor) and the output of a production process. The function is given by the following equation:
$Q = AK^aL^{1-a}$
where $Q$ is the output, $K$ is the capital, $L$ is the labor, $a$ is the elasticity of substitution between capital and labor, and $A$ is a constant.
The elasticity of substitution is a measure of how easily one input can be substituted for another. If the elasticity of substitution is equal to 1, then the inputs are perfect substitutes. This means that if the price of one input increases, the firm will be able to completely substitute the other input without any loss in output.
If the elasticity of substitution is less than 1, then the inputs are imperfect substitutes. This means that if the price of one input increases, the firm will not be able to completely substitute the other input without some loss in output.
If the elasticity of substitution is greater than 1, then the inputs are complementary. This means that if the price of one input increases, the firm will use more of the other input.
In the case of the Cobb-Douglas production function, the elasticity of substitution is equal to 1. This means that capital and labor are perfect substitutes. This is a significant property of the Cobb-Douglas production function because it implies that the firm can easily substitute one input for the other in response to changes in prices.
Here is a brief explanation of each option:
- Option A: Equal to 1. This is the correct answer. The elasticity of substitution between capital and labor is equal to 1 in the Cobb-Douglas production function.
- Option B: More than 1. This is not the correct answer. The elasticity of substitution between capital and labor is equal to 1 in the Cobb-Douglas production function.
- Option C: Less than 1. This is not the correct answer. The elasticity of substitution between capital and labor is equal to 1 in the Cobb-Douglas production function.
- Option D: Zero. This is not the correct answer. The elasticity of substitution between capital and labor is equal to 1 in the Cobb-Douglas production function.