Question

Imagine a number of isoquants drawn for a particular Cobb-Douglas production function. If technology *decreased*, what would happen to those isoquants?

Answer 1

Since the technology parameter is a part of production function, any increase/improvement in technology raises the level of output, shifting the production function up and a decline in technology reduces the level of output, shifting the production function down.

For isoquants, it can observed that the technology can save both labor and capital so the the same output is produced with a lower quantity of inputs. Hence isoquants would shift inward, suggesting that now fewer inputs are required to produce the same level of output (unbiased improvement in technology).