Question

Suppose a firm ”moves” from one point on a production isoquant to another point on the same isoquant. For each of the following, briefly explain why it is necessarily true, or the opposite is necessarily true, or it is uncertain without further information:

• A change in the level of output

• A change in the ratio in which the inputs are combined

• A change in the marginal products of the inputs

• A change in the rate of technical substitution

• A change in profitability

Answer 1

1) The output level remains constant. An isoquant curve depicts different combinations of labor(L) and capital(K) which produce a specific amount of a product or service and yields same output level. Thus output level does not change.

2) There can be change in the ratio in which the inputs are combined. An isoquant curve depicts many combinations of labor(L) and capital(K) thus there can be a change in ratio in which inputs are combined.

3) Since output level remains the same in each point of the curve; thus when output remains constant the marginal products will also not change.

4) There can be a change in rate of technical substitution. An isoquant curve is downward sloping; thus the same production level occurs only when rising input units are offset with lesser units of another input factor; and it depicts the principal of the Marginal Rate of Technical Substitution

5) There can be a change in profitability. Since production cost change thus profitability can change too.