Question

What is the elasticity of substitution of a two inputs that are perfectly complements? Explain why...

What is the elasticity of substitution of a two inputs that are perfectly complements? Explain why when two inputs are perfect complements the isoquant is right-angled.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Elasticity of substitution is a measure of the degree by which one input can be substituted for the other. If two inputs are perfect complements, they are used together in some pre ascertained proportion, and hence can't be substituted amongst each other. In this case the elastcity of subsitution is zero.

When two inputs are perfect complements, they are always used in some constant proportion. Any amount of extra quantity of one good, beyond the required proportion, doesn't yield any extra quantityy to the producer. As a result, the production function is a min function, which means, the minimum of the two quantities of input gets produced. It is because of this nature of the production function, that the isoquants are right angled .

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
If two inputs must be used in a fixed proportion, then: a) the inputs are perfect...
If two inputs must be used in a fixed proportion, then: a) the inputs are perfect substitutes. b) the inputs are imperfect substitutes. c) the inputs are complementary inputs. d) the isoquant is up-sloping and linear. e) the isoquant is down-sloping and linear.
1) A perfectly competitive firm is said to face a perfectly elastic demand curve A. Explain...
1) A perfectly competitive firm is said to face a perfectly elastic demand curve A. Explain why the price elasticity is so high under perfect competition: B. What is the consequences of a perfectly elastic demand curve on the marginal revenue received by the individual perfect competitor? C. Based on your answers to b, state the profit optimizing rule (optimal Q) to as it applies to perfect competitors ONLY:
when goods are perfect complements, a change in price leads to an income effect equal to...
when goods are perfect complements, a change in price leads to an income effect equal to the overall effect. When goods are perfect substitutes, a change in price leads to a substitution effect equal to the overall effect. Explain.
Consider a firm that uses two inputs: skilled workers and computers. Explain what it means if...
Consider a firm that uses two inputs: skilled workers and computers. Explain what it means if skilled workers and computers are complements in production. Specifically, if the price of computers falls, and skilled workers and computers are complements, will the firm want to hire more or fewer skilled workers? (2 points)
What does isoquant show? Explain (fully) why isoquants are convex to the origin of the graph....
What does isoquant show? Explain (fully) why isoquants are convex to the origin of the graph. Suppose that a firm increases all of its inputs by 25% and, as a result, the firm’s output produced increases by 20%. Calculate the firm’s returns to scale elasticity. What type of returns to scale does the firm have in this range of production? Explain.
A positive cross-elasticity of demand for two products indicates that that they are: substitutes complements independent...
A positive cross-elasticity of demand for two products indicates that that they are: substitutes complements independent goods normal goods
In certain industries, firms buy their most important inputs in markets that are close to perfectly...
In certain industries, firms buy their most important inputs in markets that are close to perfectly competitive and sell their output in imperfectly competitive markets. A. Cite as many examples as you can of these types of businesses. B. Explain why the profits of such firms tend to increase when there is an excess supply of the inputs they use in their production process.
1. Graphically, what does the demand curve look like when demand is perfectly elastic? When it...
1. Graphically, what does the demand curve look like when demand is perfectly elastic? When it is perfectly inelastic? 2. What is the relationship--if there is one--between the price elasticity of demand and the slope of the demand curve? 3. In the context of elasticity, how can goods be classified as "substitutes," "complements," or "independent goods?" (Hint: think about this in terms of the number values used to define elasticity.)
Consider a firm that used only two inputs, capital (K) and labor (L), to produce output....
Consider a firm that used only two inputs, capital (K) and labor (L), to produce output. The production function is given by: Q = 60L^(2/3)K^(1/3) . a.Find the returns to scale of this production function. b. Derive the Marginal Rate of Technical Substitutions (MRTS) between capital and labor. Does the law of diminishing MRTS hold? Why? Derive the equation for a sample isoquant (Q=120) and draw the isoquant. Be sure to label as many points as you can. c. Compute...
8. It is likely that there will be a corner point solution when a) two goods...
8. It is likely that there will be a corner point solution when a) two goods are perfect substitutes and the marginal rate of substitution is equal in magnitude to the slope of the budget constraint. b) an indifference curve is tangent to the budget constraint. c) two goods are perfect complements and the marginal rate of substitution is not equal in magnitude to the slope of the budget constraint. d) two goods are perfect substitutes and the marginal rate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT