6. What is an isoquant? Why does it slope downward? Why does it have a convex...

6. What is an isoquant? Why does it slope downward? Why does it have a convex curvature? Thoroughly explain your answer.

Expert Solution

“The Iso-product curves show the different combinations of two resources with which a firm can produce equal amount of product.” Isoquant is a curve showing different combinations of inputs to produce a constant level of output. It is downward sloping generally, as it depicts how in order to increase the use of one input, another input has to be sacrificed. The slope is called the marginal rate of technical substitution. It is convex implies that one has diminishing MRTS as one moves along the isoquant curve substituting one input for the other and the opportunity cost declines as the rate of substitution increases.Like indifference curves, isoquants are convex to the origin. In order to understand this fact, we have to understand the concept of diminishing marginal rate of technical substitution (MRTS), because convexity of an isoquant implies that the MRTS diminishes along the isoquant. The marginal rate of technical substitution between L and K is defined as the quantity of K which can be given up in exchange for an additional unit of L. It can also be defined as the slope of an isoquant.

MRTS_LK = – ∆K/∆L = dK/ dL

Where ∆K is the change in capital and AL is the change in labour

Rahul Sunny answered 1 year ago

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