Question

Suppose a firm ”moves” from one point on a production isoquant to another point on the same isoquant. For each of the following, briefly explain why it is always true, always false, or uncertain without further information:

1) A change in the level of output

2) A change in the ratio in which the inputs are combined

3) A change in the marginal products of the inputs

4) A change in the rate of technical substitution

5) A change in profitability

(If possible examples of curves help)

Answer 1

1). Always false

All point on an isoquant imply that output level is constant along the curve

2) always true

Yes ratio in which inputs are combined changes , as we move along a curve, level of inputs change, so their ratio too changes.

3) always true

As MRTS changes along the curve, & hence MP of inputs change as input level changes .

An isoquant is drawn between combination of Two inputs to produce a given output level.

So moving from one point to another, level of inputs change, so the MP change.

4)always true.

MRTS is slope of an isoquant , hence moving from one point to another, slope & hence MRTs changes

5) always true

As profitability depends on level of two inputs combined, as the combinations of two inputs change along a curve, so is the profitability level.