Question

Q1 [30 points] Show in a diagram using isoquants that a production function can have diminishing marginal return to a factor and constant returns to scale? With the help of a diagram explain the concepts of "isoquant", "diminishing marginal return to a factor", and "constant returns to scale". What are the similarities and differences between indifference curves and isoquants. Q2 [30 points Assume that a firm has a fixed-proportions production function, in which one unit of output is produced using one worker and two units of capital. If the firm has an extra worker, say two workers, and no more capital, it still can produce only one unit of output. Similarly, an extra unit of capital does the firm no good. a) Draw the isoquants for this production functiorn. b) Draw the total product, average product, and marginal product of la- bor curves (you will probably want to use two diagrams) for this productiorn function Q3 [20 points Suppose that you own a firm that produces widgets, and at your firm, the relationship between output produced and number of workers you hire is as follows:

Answer 1

A to B represent constant return to scale A to C represent diminishing return to a factor. Isoquant: shows different workers atom of two inputs that produces same level of output. IC rightwardsdoublearrow shows different combination of two good that gives same level of scales faction quantity