Answered: Sketch a typical isoquant for a…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 9E

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APPLICATION

Sketch a typical isoquant for a healthcare outcome, say “population mental health”. The inputs used to produce this output are “therapists” and “drugs”. Draw representative isocost lines and indicate the least-cost combination of inputs to achieve the output level represented by the isoquant. Illustrate what would happen if the price of therapists increased. Did the least-cost input combination change? In what way? That is, are you using more therapists after the price change or less? What happened to the use of drugs?

Suppose a production process is characterized by the following table:
1
3
Labor
Capital
1
2
3
4
5
35
60
70
85
95
2
60
70
80
95
105
70
85
95
105
115
4
85
95
105
115
125
5
95
105
115
125
135
The top row and leftmost column represent input levels of labor and capital, respectively. The
inner cells represent output levels.
Sketch the isoquants corresponding to the following output levels: 70, 85, 95, and 105.

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