Question

A straight-line isoquant A. would indicate that the firm could switch from one output to another costlessly. B. would indicate that the firm could not switch from one output to another. C. would indicate that capital and labor cannot be substituted for each other in production. D. would indicate that capital and labor are perfect substitutes in production.

Answer 1

D. would indicate that capital and labor are perfect substitutes in production.

Step-by-step explanation:

A marginal rate of technical substitution (MRTS) can be defined as an economic principle which is typically used to represent the rate at which a factor such as capital must decrease so that the same level or quantity of production is maintained when another factor such as labor is changed (increased).

An isoquant is the slope of a marginal rate of technical substitution (MRTS) which connects the two input factors provided that the level of output or production is the same.

Also, the diminishing marginal rate of technical substitution refers to the decline (fall) in marginal rate of technical substitution (MRTS) along an isoquant that produces the same quantity (level) of output.

When an isoquant has a diminishing marginal rate of technical substitution, the corresponding isoquants are convex to the origin. Thus, the marginal rate of technical substitution (MRTS) would continue to diminish as more of a factor such as capital is used.

Additionally, the steeper an isoquant the greater is the marginal productivity of labor with respect to marginal productivity of capital.

Hence, a straight-line isoquant would indicate that capital and labor are perfect substitutes in production.