Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 6: Q6. (page 236)

A firm has a production process in which the inputs to production are perfectly substitutable in the long run. Can you tell whether the marginal rate of technical substitution is high or low, or is further information necessary? Discuss.

Short Answer

Expert verified

Some information regarding the marginal productivity of the inputs is required to calculate the value of MRTS and to conclude whether MRTS is high or low.

Step by step solution

01

The definition of MRTS 

The marginal rate of technical substitution is a concept that indicates substitution or exchange between inputs. It depends on the marginal productivity of each input. The value of MRTS defines the slope of isoquant.

02

The conclusion regarding MRTS

In this case, the inputs used by the firm are perfect substitutes. So the isoquant faced by the firm is linear, and the value of MRTS should be constant. However, to calculate the slope of the isoquant or the value of MRTS, it is important to know the marginal product of each input. Hence, to conclude whether the value of MRTS is high or low, some information regarding the marginal productivity is required.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

In Example 6.4, wheat is produced according to the production function

q = 100(K0.8L0.2)

a. Beginning with a capital input of 4 and a labor input of 49, show that the marginal product of labor and the marginal product of capital are both decreasing.

b. Does this production function exhibit increasing, decreasing, or constant returns to scale?

Fill in the gaps in the table below.

Quantity of variable input
Total output
Marginal product of variable input
Average product of variable input
00

1225

2

300
3
300
41140

5
225
6

225

Do the following functions exhibit increasing, constant, or decreasing returns to scale? What happens to the marginal product of each individual factor as that factor is increased and the other factor held constant?

a. q = 3L + 2K

b. q = (2L + 2K)1/2

c. q = 3LK2

d. q = L1/2K1/2

e. q = 4L1/2 + 4K

A political campaign manager must decide whether to emphasize television advertisements or letters to potential voters in a reelection campaign. Describe the production function for campaign votes. How might information about this function (such as the shape of the isoquants) help the campaign manager to plan strategy?

The production function for the personal computers of DISK, Inc., is given by

q = 10K0.5L0.5

where q is the number of computers produced per day, K is hours of machine time, and L is hours of labor input.

DISK’s competitor, FLOPPY, Inc., is using the production function

q = 10K0.6L0.4

a. If both companies use the same amounts of capital and labor, which will generate more output?

b. Assume that capital is limited to 9 machine-hours, but labor is unlimited in supply. In which company is the marginal product of labor greater? Explain.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free