Question

1. According to production engineers, the firm's production function gives the following outputs that can be produced from various combinations of labor and capital. Units of Capital 40 87 137 197 250 Units 45 69 87 100 58 S7 110 130 42 of Labor4 87 a. Suppose that the firm wants to produce 87 units of output. Construct the firm's this isoquant. Clearly label all input combinations making up this isoquant. b. What is odd about this isoquant? Why is it shaped this particular way? What isoquant for the desired output of 87 lain howyou derive this graph. Graph does it imply about the Marginal Rate of Technical Substitution? Explain.

Answer 1

a)

In this case, Isoquant curve will be formed by all combinations of Labor units (L) and capital units (K) that gives same i.e. 87 units of output.

Combinations are

(L=5, K=1)

(L=4, K=2)

(L=3, K=3)

(L=1, K=4)

Isoquant curve can be drawn as under

ち2 4,2 isoquant, Q-87 -2 0 2 4 6 Units of Labor,L

b)

Observation 1

It is a downwards slopping.  

It is slopping downwards from left to right. It is a negatively slopped curve. It is because of the fact that if quantity of labor is increased, quantity of capital should be reduced to maintain the same output level. It is true in case of other variable also i.e. if quantity of capital is increased, quantity of labor should be decreased to maintain the same output level.

Observation 2

It is a straight line.

Straight line curve means constant slope i.e. constant MRTS in this case. It means that Ratio of marginal products of labor and capital is same in this case.