Production | Isoquants can be convex, linear, or L-shaped. What does each of these shapes tell you about the nature of the production function? What does each of these shapes tell you about the MRTS?
Isoquants
can be convex, linear, or L-shaped.
What does each of these shapes tell you
about the nature of the production function?
What does each of these shapes
tell you about the MRTS?
Convex isoquants imply that within some range, some number of units of one input can be substituted for a unit of the other input, and output can be maintained at the same level. In this case, the MRTS is diminishing as we move down along the isoquant. Linear isoquants imply that the slope, or the MRTS, is constant. This means that the same number of units of one input can always be exchanged for a unit of the other input and output can be maintained. The inputs are perfect substitutes. L-shaped isoquants imply that the inputs are perfect complements, or that the firm is producing under a fixed proportions type of technology. In this case the firm cannot give up one input in exchange for the other and still maintain the same level of output. For example, the firm may require exactly 4 units of capital for each unit of labor, in which case one input cannot be substituted for the other.
Convex isoquants imply that within some range, some number of units of one input can be substituted for a unit of the other input, and output can be maintained at the same level. In this case, the MRTS is diminishing as we move down along the isoquant. Linear isoquants imply that the slope, or the MRTS, is constant. This means that the same number of units of one input can always be exchanged for a unit of the other input and output can be maintained. The inputs are perfect substitutes. L-shaped isoquants imply that the inputs are perfect complements, or that the firm is producing under a fixed proportions type of technology. In this case the firm cannot give up one input in exchange for the other and still maintain the same level of output.
ReplyDeleteFor example, the firm may require exactly 4 units of capital for each unit of labor, in which case one input cannot be substituted for the other.
Thank you so much for the answer 🙂
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