Question

In: Economics

2. A company currently uses 10 units of labor and 4 units of capital in its...

2. A company currently uses 10 units of labor and 4 units of capital in its production process and is able to produce 150 units of output per day.

a. Provide an isoquant that shows imperfect substitution between labor and capital and label the values that are described on your graph.

b. The company owner decides to use more capital and less labor in its production process. What should happen to the marginal product of capital relative to the marginal product of labor? Use intuition and math to explain your answer.

c. How would your isoquant change in part a. if capital and labor were perfect substitutes in production? Illustrate this on your graph and explain the change.

d. Re-answer your question to part b. if capital and labor are perfect substitutes.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
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