Exercise 3 Consider a firm with production function of the q(L, K) = L√K, where q is the quantity of automobiles produced per year, L is the quantity of labor (man-hour), and K is the quantity of capital (machine-hour). [Hint: Isoquant curves represent different combinations of inputs that a firm can use to produce the same level of output. They are analogous to indifference curves in consumer theory. To draw isoquants, we represent labor on the horizontal axis and capital on the vertical axis and we follow same approach as we did to find the expressions of indifference curves] a) On the same graph, plot (with scale) the isoquants corresponding to output levels of q = 10, q = 20 and q = 50 [Hint: To find the equation of each isoquant, set the production function equal to each output level and solve for K. Then, plot the resulting curve] b) Do these isoquants exhibit diminish marginal rate of technical substitution of labor for capital? How easy or difficult is for the firm to substitute between inputs? Explain. c) What is the general equation for the isoquant corresponding to any level of output q?

Exercise 3 Consider a firm with production function of the q(L, K) = L√K, where q is the quantity of automobiles produced per year, L is the quantity of labor (man-hour), and K is the quantity of capital (machine-hour). [Hint: Isoquant curves represent different combinations of inputs that a firm can use to produce the same level of output. They are analogous to indifference curves in consumer theory. To draw isoquants, we represent labor on the horizontal axis and capital on the vertical axis and we follow same approach as we did to find the expressions of indifference curves] a) On the same graph, plot (with scale) the isoquants corresponding to output levels of q = 10, q = 20 and q = 50 [Hint: To find the equation of each isoquant, set the production function equal to each output level and solve for K. Then, plot the resulting curve] b) Do these isoquants exhibit diminish marginal rate of technical substitution of labor for capital? How easy or difficult is for the firm to substitute between inputs? Explain. c) What is the general equation for the isoquant corresponding to any level of output q?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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