Final answer:
The steepness of an isoquant reflects the substitutability of labor for other inputs, with a steeper slope indicating a higher marginal rate of technical substitution and greater complementarity between labor and capital. Firms adjust their input mix based on the relative costs, which is evident in the different technologies used by multinational corporations across economies with varying wage levels.
Step-by-step explanation:
When an isoquant is steeper, this suggests that the rate at which labor can be substituted for capital (or other inputs) is decreasing. A steeper isoquant indicates a higher marginal rate of technical substitution (MRTS), meaning that more capital would be needed to replace one additional unit of labor while keeping output constant. This also implies a strong complementarity between labor and capital; they are not easily substitutable. As labor becomes more expensive, firms are incentivized to shift towards other relatively cheaper inputs, this could be seen in the context of multinational companies that adjust their input mix based on the wages of the economy they are operating in, leading to different production technologies usage depending on labor costs.
A real-world example of this is when large companies, such as Coca-Cola or McDonald's, set up operations in high-wage economies versus lower-wage economies. In the former, you will find a higher use of machinery as opposed to labor, making the isoquant steeper; the opposite is true for the latter where more labor is used and machines are conserved, leading to a less steep isoquant. Understanding the slope of an isoquant is essential for comprehending how firms make decisions regarding their mix of inputs and how this affects the overall level of production and prices in an economy.