Attempts: Average: /3 7. Relationship between returns to scale, isoquants, produ
ID: 1123389 • Letter: A
Question
Attempts: Average: /3 7. Relationship between returns to scale, isoquants, production frontiers, and cost Aa Aa curves The following graph shows two isoquants that represent the firm's production technology. One of the isoquants shows all of the possible combinations of labor and capital that can produce 100 units of output (q = 100), but you must determine the other isoquant's quantity given the information below Suppose the firm's production process exhibits decreasing returns to scale. Employing 20 units of labor and 20 units of capital results in scale, then when the firm uses 40 units of labor and 40 units of capital, output should be as much as before. On the following graph, select the possible level of output that the second isoquant can represent, given this information units of output being produced. If the production process exhibits decreasing returns to 2 times CAPITAL 100 90 80 70 60 50 40 30 20 10 q 100 0 10 20 30 40 50 60 70 80 90 100 LABOR 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
From the graph the isoquant of q=100 has K=20 and L=20
Employing 20 units of labor and 20 units of capital results in 100 units of output being produced.
Since there is decreasing returns to scale. the proportionate change in output will be lesser than the proportionate change in input.
The capital and labor have become 2 times, so the output should be less than 2 times.
when the firm uses 40 units of capital and 40 units of labor, output should be less than 2 times as much as before.
100 units and less than are answers to both blanks.
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