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 Variable Total Input Output Marginal Product of Variable Input Average Product of Variable Input 50 3 90 96 b) Draw the marginal product of variable input and comment on its shape.

Answer 1

9.a) Isoquants are not always L- shaped. L- shaped isoquants shows that factors are perfect complements. Generally isoquants are convex to origin. In case of factors which are perfect substitutes isoquants are downward sloping straight lines. Hence the statement is false.

9.b) Network externalities arises when one individual's demand for a commodity depends on the number of other people who consume it. Bandwagon effect refers to the psychological phenomenon by which people demand a good because other people are consuming it already. Existence of positive network externalities give rise to bandwagon effect. The more the users of a product, the greater will be the demand for the product by an individual. Therefore the statement is false

9.c) Demand for washing machines are more elastic in the short run than in the long run. This is because washing machines are durable goods and therefore have alternatives and hence elastic in the short run. Whereas due to time lag in production they are less elastic in the long run. Hence the statement is true.