CA Foundation · Business Economics · Theory of Production and Cost
A firm's production function is Q = 3L + 2K, where L is labour and K is capital. Which statement about its isoquants is correct?
Isoquants are straight lines with a constant MRTS of 1.5. In a linear function Q = 3L + 2K, inputs are perfect substitutes, and MRTS of labour for capital equals MPL divided by MPK, which is 3 divided by 2.
- AIsoquants are L-shaped, showing fixed proportions
- BIsoquants are straight lines with a constant MRTS of 1.5Correct
- CIsoquants are convex with a diminishing MRTS
- DIsoquants are straight lines with a constant MRTS of 0.67
Explanation
A linear production function implies perfect substitutability, so isoquants are downward-sloping straight lines. MRTS of L for K = MPL/MPK = 3/2 = 1.5, constant everywhere. The value 0.67 is the inverted ratio MPK/MPL, which is the wrong way round for MRTS of labour for capital.
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