a) Show the tangency points of producing some output Q in two countries with ide

Question

a) Show the tangency points of producing some output Q in two countries with identical technology and cost. Country A has higher wage rate compared to Country B. but country B has higher price of capital than Country A, why are the capital ratios different?

b) indifference curves can be positively sloping but the isoquants can never be positively sloping. Why or why not?

c) Input prices can change the production function and also the isoquants. Explain

d) suppose a firm is currently production an output Q using two inputs 1 and 2, where MP1/w1 = MP2/w2 = 1/P = 1/MC Can it still increase the profit? why or why not?

Explanation / Answer

Answer to part b.

Both, Indifference curves and Isoquants cannot be positively sloped.

Reasons:

1. Indifference curves represent the substitutability between two comodities - X and Y. Under ICs, one has to give up Y in order to consumer one more quantity of Y - and retain the same level of utility that one can achieve. Should the IC slope upwards, it means one consumes progressively more and more units of X as it does of Y. However if one consumes more of 2 comodities then utility cannot remain the same, which is the basic assumtion of an Indifference curve. Hence ICs cannot slope upwards.

2. Isocosts represent the combinations of Factors of production (say Labour and capital) which yield the same level of output. An upward sloping Isoquant means that more of Y and more of X are being progressively employed to generate same level of output which is not possible. Hence even Isoquants cannot slope upwards.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.