Question

4. Two companies, X and Y, are competitors in the same industry, but company X is more efficient at using its resources than company Y.

a. If the MRTS is the same in the production processes of both companies, show and discuss how the isoquants will be different for company X than they are for company Y.

b. Both companies can hire labor at the same wage, w, but company X is able to pay a lower rent per unit on its capital. Show and discuss how these company’s relative uses of labor and capital will be different from one another and why.

Answer 1

ANSWER :-

A).MRTS or Marginal Rate of Technical Substitution shows the rate at which one factor must be diminished with the goal that a similar degree of profitability can be accomplished when the other factor is expanded.

●Though the MRTS is the equivalent in the creation cycles of the two organizations, the isoquants would in any case be distinctive for both the organizations.

●The isoquant for organization X would lie paralell and underneath the one for organization Y on the grounds that the equivalent ouput as Y can be created by organization X by utilizing less factors of creation since all the variables that it utilizes are more proficient.

B). The expense of the apparent multitude of elements joined impacts each organization. Organization Y encounters a greater expense for lease and consequently will undoubtedly eliminate its cost on lease just as work.

● In this manner the firm closures us utilizing lower level of components of creation in its creation and accordingly delivers less.

●Similarily, Company X confronting a lower cost would build its variables and as a result of its additional proficiency would have the option to create much more than organization Y.

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