Q4Managerial Economics & Financial Accounting
Question
2 marks
What does the shape of an isoquant show?
Answer
An isoquant is convex to the origin, demonstrating the diminishing marginal rate of technical substitution between inputs.
An Isoquant is typically convex to the origin and slopes downwards from left to right.
This convex shape shows the Diminishing Marginal Rate of Technical Substitution (MRTS). It means that as a producer substitutes more and more of one input (like labor) for another (like capital) to maintain the same level of output, the amount of capital they are willing to sacrifice for one additional unit of labor strictly decreases.