Question

Which of the following statements is (are) TRUE?
I. If labor and capital are perfect substitutes in production, the isoquant is a straight, downward-sloping line.
II. If a company needs to use inputs in fixed proportion such that the capital to labor ratio is always 2, the firm's isoquants are L-shaped.
III. If the production function is given by Q = min(14, 7), the firm can produce, at minimum, 21 units of output.

a. III
b. I and II
c. I
d. I, II, and III

Answer 1

Answer:

Only statements I and II are correct

Explanation:

Perfectly substittuable goods have straight downward sloping ICs, and have corner solutions

Complementary goods (used in fixed proportions) are L shaped always

In case of min(x,y) function, the answer is the value of x or y which ever is minimum and not their sum.