Answered: Illustrate and explain two special…

Illustrate and explain two special cases of production functions: (1) Inputs to production that are perfectly substitutable, and (2) fixed proportions production function.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.6P

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Concept explainers

Isocost and Isoprofit Curve Analysis

An isocost curve in the production theory that is a crucial part of economics depicts different combinations of factor inputs at a given market cost. In other words, this shows all the combinations of production factors that cost the same for the firm to employ. Usually, this can be depicted as a downward sloping straight line when the firms act as the price-takers in the factor markets. The slope of this mainly depicts the relative prices of different production factors.

Question

Illustrate and explain two special cases of production functions: (1) Inputs to production that are perfectly substitutable, and (2) fixed proportions production function.

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Step 1: Definition of production function

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Step 2: 1. Perfect Substitutes

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Step 3: 2. Fixed Proportions (Leontief Production Function)

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