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Suppose that for a firm that digs ditches for laying cable or pipeline, backhoes and backhoe operators are pure complements in production, being used on a one-for-one basis. Draw the isoquants (on a graph with backhoe, “K”, and backhoe operators, “E”, on the axes) for the production of three different quantities of ditches. Do they have a “funny” shape?

a) Now consider one such ditch-digging firm that has five backhoes but employs six backhoe operators. Can you explain why this might make sense?

(Hint: think about whether/how the marginal product of the sixth backhoe operator could be positive)

b) Now suppose you see another ditch-digging firm that has seven backhoes but employs six backhoe operators. How could this make sense?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91238309

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