Question

Isograms are linear when resources are:

• A. Compliments
• B. Competitive
• C. Perfect substitutes
• D. Perfect compliments

Hint:

Exam Tip:
Perfect Substitutes: Linear isoquant.
Perfect Complements: L-shaped isoquant.
Normal Substitutes: Convex isoquant (most common).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
This question tests knowledge of production theory, specifically the concept of isograms (also known as isoquants) and the relationship between inputs.

Step 2: Defining Isograms (Isoquants):
An isoquant is a curve that shows all the combinations of two inputs (e.g., labor and capital) that produce the same level of output.
The shape of the isoquant depends on the substitutability of the inputs.

Step 3: Analyzing Resource Relationships:
Let's analyze how the shape of the isoquant changes based on the relationship between inputs:
• Perfect Substitutes: When two inputs are perfect substitutes, they can be used interchangeably in production. The producer can use either input or a combination of both to produce the same output. The isoquant for perfect substitutes is a straight line (linear).
_ _ _ _ Example: Two types of fuel (gasoline and ethanol) that can be used in the same engine with the same efficiency.
• Perfect Compliments: When two inputs are perfect complements, they must be used in a fixed proportion. One input cannot be substituted for the other. The isoquant for perfect complements is L-shaped (right angle).
_ _ _ _ Example: One tractor and one driver. You need one of each to operate.
• Compliments: Inputs that are used together but not in a fixed proportion. The isoquant is convex to the origin.
• Competitive: Inputs that can be substituted for each other. The isoquant is convex to the origin.

Step 4: Final Answer:
Isograms (isoquants) are linear when resources are perfect substitutes. Therefore, option (C) is correct.