One way to explain the convexity of isoquants is to say that A) as labor increases and capital decreases, MP_L rises while MP_K falls. B) as labor increases and capital decreases, MP_L falls while MP_K rises. C) as labor increases and capital decreases, MP_L and MP_K both fall. D) as labor increases and capital decreases, MP_L and MP_K both rise.

Question

Quizplus · Accepted Answer

As labor increases and capital decreases, the marginal product of labor (MPL) falls while the marginal product of capital (MPK) rises due to the fixed input of capital becoming relatively scarce. Since the slope of an isoquant is given by the ratio of MPL to MPK, the slope of the isoquant becomes steeper, causing it to be convex. Therefore, as labor increases and capital decreases, MP_L falls while MP_K rises, resulting in a convex isoquant.

One Way to Explain the Convexity of Isoquants Is to Say