To say that isoquants are convex is to say that
A) the marginal rate of technical substitution falls as labor increases.
B) capital and labor are perfect substitutes.
C) labor, but not capital, is subject to the law of diminishing marginal returns.
D) there are constant returns to scale.

Question

Quizplus · Accepted Answer

The convex shape of isoquants indicates that the marginal rate of technical substitution (MRTS) falls as we increase labor input while holding capital constant. This happens because as we increase the amount of one input while holding the other fixed, the marginal contribution of the input being increased tends to decrease. Therefore, more and more of the other input is required to compensate for the diminishing productivity of the input that is being increased. Thus, the shape of isoquants reflects the law of diminishing marginal returns. Choices B, C, and D are incorrect because they do not directly relate to the shape of isoquants.

To Say That Isoquants Are Convex Is to Say That