Suppose electricity (E)can be produced with coal (C)or gas (G)to operate steam turbines (T).Suppose gas is more efficiently burned than coal but that they are otherwise perfect substitutes.E = min((G + .5C),T). The isoquants between gas and coal will be
A)hyperbolas
B)quarter circles
C)straight lines

Question

Quizplus · Accepted Answer

Since gas and coal are perfect substitutes, the isoquants will be straight lines. This is because the ratio of gas to coal needed to produce a certain level of electricity (E) will remain constant along the isoquant. Therefore, any combination of gas and coal that produces the same level of electricity will lie on a straight line.

As for the best choice, it depends on the relative prices of coal and gas. If gas is cheaper than coal, then it will be the preferred input. If coal is cheaper, then it will be used instead. The specific combination of inputs used will depend on the cost of each input and the level of electricity needed.

Suppose Electricity (E)can Be Produced with Coal (C)or Gas (G)to