Question

9. Are the following statements true or false? Explain your answers a) 'Isoquants are always L-shaped. b) 'A bandwagon effect is an example of negative network externality in which a consumer wishes to possess a good in part because others do. c) The demand for washing machines is more elastic in the short run than the long run. 10.a) Complete the following table: Quantity Of Marginal Product of Average Product of Variable Total Variable Variable Input Output Input Input 0 0 50 2 30 90 24 4 5 6 96 b) Draw the marginal product of variable input and comment on its shape

Answer 1

Question 9.

A. The statement is False. Isoquants show the combinations of inputs(usually, labor and capital) that produce the same amount of output. The shape of the isoquants may differ according to the relationship between the inputs/production function. If inputs are perfectly subsitutable, the isoquant will be a straight downward sloping line. It can bowed inwards (cobb douglas production function) or L- shaped (fixed proportions production function) as well.

B. This statement is also false. Example of negative network externality is snob effect which says that people like to hold things that are unique. Due to this the dand for a good having snob effect is higher, the lesser number of people hold it.

Bandwagon effect is an example of positive network externality.

C. Demand and supply are usually more inelastic in the short run than in long run. In long run people can look for alternative options of washing machine but it might not be possible in the short run. Thus, this statement is also wrong.