Question

During the last 30 years computers have changed most production processes. Use an Isocost-Isoquant diagram to show the effect the spread of computers have had on labor during the last 30 years.

Answer 1

Since the prices of computers have gone down, the Isocost becomes flatter. Even if we assume the productivity of labor and capital (shapes of Isoquants) remained the same, companies would replace some workers for computers. Nevertheless, Isoquants probably did not remain the same. Some could say that the productivity of workers increased due with the use of computers, hence the Isoquant would become steeper. Other students might argue that capital is more productive, and hence the Isoquants would become flatter.

Another alternative possible graph could be