Suppose that additional units of capital affect the marginal productivity of labor. This is not unrealistic. Word processors increase the marginal productivity of secretaries. On the other hand, robotic equipment can completely replace a worker and, thereby, lower the marginal productivity of labor. Given this possibility, determine the conditions under which isoquants will not be convex (i.e.,
concave).
What will be an ideal response?
The slope of the isoquant equals -MPL/MPK. To be concave, the slope of the isoquant becomes steeper as L increases. For this to be the case, MPL would have to increase more than MPK as labor increases and capital falls. That means the decrease in capital causes MPL to rise more than the increase in labor causes MPL to fall. The large inverse relationship implies that capital is replacing labor for this to be the case.
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Explain what happens to the magnitude of price elasticity of demand as price increases along a straight-line demand curve
Assuming no change in product demand, a pure monopolist:
A. can increase price and increase sales simultaneously because it dominates the market. B. adds an amount to total revenue that is equal to the price of incremental sales. C. should produce in the range where marginal revenue is negative. D. must lower price to increase sales.
What is the price elasticity of supply? How is it measured?
Please provide the best answer for the statement.
As an economy adjusts to an decrease in the saving rate, we would expect output per worker
A) to decrease at a constant rate and continue decreasing at that rate in the steady state. B) to decrease at a permanently higher rate. C) to increase at a permanently higher rate. D) to return to its original level. E) none of the above