(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 245

220 PART • Producers, Consumers, and Competitive Markets Capital per year A F IGURE 6.7 ISOQUANTS WHEN INPUTS ARE PERFECT SUBSTITUTES When the isoquants are straight lines, the MRTS is constant Thus the rate at which capital and labor can be substituted for each other is the same no matter what level of inputs is being used Points A, B, and C represent three different capital-labor combinations that generate the same output q3 B C q1 q2 q3 Labor per year it is impossible to make any substitution among inputs Each level of output requires a specific combination of labor and capital: Additional output cannot be obtained unless more capital and labor are added in specific proportions As a result, the isoquants are L-shaped, just as indifference curves are L-shaped when two goods are perfect complements An example is the reconstruction of concrete sidewalks using jackhammers It takes one person to use a jackhammer— neither two people and one jackhammer nor one person and two jackhammers will increase production As another example, suppose that a cereal company offers a new breakfast cereal, Nutty Oat Crunch, whose two inputs, not surprisingly, are oats and nuts The secret formula for the cereal requires exactly one Capital per year F IGURE 6.8 q3 C FIXED-PROPORTIONS PRODUCTION FUNCTION When the isoquants are L-shaped, only one combination of labor and capital can be used to produce a given output (as at point A on isoquant q1, point B on isoquant q2, and point C on isoquant q3) Adding more labor alone does not increase output, nor does adding more capital alone q2 B K1 A L1 q1 Labor per year