Attempts: Average: /2 6. Substitutability of inputs Aa Aa Below are the isoquant
ID: 1123388 • Letter: A
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Attempts: Average: /2 6. Substitutability of inputs Aa Aa Below are the isoquants for two different businesses, a taxi company and a grocery store. Each isoquant represents a set of the combinations of labor and capital required to produce a given quantity of output (q1, q2, or q3 customers checked out and q1, q2, or q3 taxi rides given) CAPITAL PER WEEK CAPITAL PER WEEK 92 q1 q1 q2 q3 LABOR PER WEEK LABOR PER WEEK Suppose the grocery store offers both checkout aisles with human checkers and also automated checkout machines, both of which are regarded as fairly comparable by the customers, but the taxi company requires exactly one driver for each taxi. Based on your understanding of isoquants and input substitutability, the isoquants for the taxi company are depicted by the graph on the If both businesses pay their workers the minimum wage, then an increase in the minimum wage will have a greater impact on the costs of the , due to the non-substitutability of its inputs QNA 3.16 © 2004-2016 Aplia. All rights reserved Graphs Tool 1.55 © 2002-2013 Cengage Learning. All rights reserved. © 2013 Cengage Learning except as noted. All rights reserved. Grade It Now Save & Continue Continue without savingExplanation / Answer
(1) Isoquant for the taxi company are depicted by graph on the RIGHT.
(Production function for taxi company is a fixed-proportion production function, which means that inputs are used in a fixed proportion. Such isoquants are L-shaped)
(2) Greater impact on costs of Taxi company
Since inputs are used in fixed proportion, change in price of one input does not allow the company to substitute the costlier input by the cheaper input, and company has to pay higher total input cost.
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