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Draw an isoquant that shows relatively little substitution

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Draw an isoquant that shows relatively little substitution between two factor inputs and one that shows relatively large substitution in health care facility. Let the vertical axis represent capital and let the horizontal axis represent labor.

Draw isocost curves that are tangent to your isoquants in Problem 4 and that each have the same slope. Mark the points of tangency and note the capital/labor ratio. Draw new, flatter isocost curves that are tangent, again each having the same new slope. Mark the points of tangency and note the capital/labor ratio. In which case is the change in the capital/labor ratio greater? Which will have a higher elasticity of substitution?

Reference no: EM132491880

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