Firms usually have isoquants that are strictly convex. This is because of a. the limited supply...

Firms usually have isoquants that are strictly convex. This is because of

a. the limited supply of an input.

b. decreasing returns to scale.

c. the law of diminishing returns.

d. the law of diminishing marginal rates of technical substitution

Expert Solution

Explanation :

Isoquants refers to locus of point of combination of two input say,labour & capital producing same level of output .

Marginal rate of technical substitution refers to Rate at which one input factor is decrease to maintain same level of productivity when one input factor is increased .For example : To increase capital in production and want maintain same level of productivity then labour must be decrease and rate at which labour is decrease and capital is increased is called marginal rate of technical substitution.

Isoquant curve is convex to origin when the law of marginal rate of technical substitution previals .

So, option d) is correct because law of marginal rate of technical substitution state that to increase one input we have to decrease another input but at decreasing rate sothst same level of output is maintained this is because two factor are not perfect substitute of each other i.e. labour cannot be used perfectly as capital .

Option a) the limited supply of an input is incorrect because it doesn't have effect on shape of isoquant.It can only shift isoquant.

Option b) decreasing return to scale is also incorrect because it state "increase in input gives less than proportionate increase in output".

Option c) law of diminishing returns is also incorrect because it is the reason for law of diminishing marginal rate of technical substitution but not the convex shape of the isoquant.it operate when marginal production is decreasing.

So ,the correct answer is option d) law of diminishing marginal rate of technical substitution.

Rahul Sunny answered 2 years ago

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