Question

Given below are two statements:
Statement (I): Home-grown grain and purchased grain is an example of perfect substitute.
Statement (II): In case of perfect compliments, the producer either uses the factors in certain fixed proportions or not at all.
In light of the above statements, choose the most appropriate answer from the options given below:

• A. Both Statement (I) and Statement (II) are true.
• B. Both Statement (I) and Statement (II) are false.
• C. Statement (I) is true but Statement (II) is false.
• D. Statement (I) is false but Statement (II) is true.

Hint:

Isoquants for perfect substitutes are straight lines with a constant negative slope, while isoquants for perfect complements are L-shaped, reflecting the rigid fixed-proportion requirement.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
This question evaluates the substitution characteristics of different types of inputs used in production processes.

Step 3: Detailed Explanation:
Let us analyze both statements:
- Statement (I): Two inputs are perfect substitutes if they can be substituted for one another at a constant rate while maintaining the same level of output. In livestock feeding or sowing, home-grown grain and purchased grain of the same quality perform identical functions and can be substituted on a 1:1 basis. Hence, they are perfect substitutes, making Statement (I) true.
- Statement (II): Perfect complements are inputs that must be combined in exact, fixed proportions to produce output (e.g., one tractor and one tractor driver). Increasing the quantity of one input without a corresponding increase in the other does not increase output. Thus, a rational producer must use them in these fixed proportions or choose not to produce at all. This makes Statement (II) true.
Therefore, both Statement (I) and Statement (II) are true.

Step 4: Final Answer:
Both statements are true, corresponding to option (A).