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Consider a firm that can produce q units of good G using two technologies and two production factors, $z_1$ and $z_2$. There are two ways how a firm can produce the good G: It can use 2 units of $z_1$ and 1 unit of $z_2$ to produce one unit of good G, or it can use 1 unit of $z_1$ and 2 units of $z_2$ to also produce one unit of the same good. Using these proportions of inputs, the firm is able to replicate any amount of good in question. The production set of the firm displays (among other properties) free disposal property and is convex.

My question is whether the production function is expressed like this $$f(z)=\min\{ z_1 + 2z_2 ; 2z_1 + z_2\}$$ and how would we express the isoquant function? Would it be like this? enter image description here

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  • $\begingroup$ Have you tried substituting some numbers? $\endgroup$
    – Giskard
    Jan 25 at 11:44
  • $\begingroup$ Like how many units can the company produce with inputs $z_1 = 3, z_2=3$ according to your formula, and how many according to the text? $\endgroup$
    – Giskard
    Jan 25 at 11:45
  • $\begingroup$ Wouldn't it be 9 in both cases? $\endgroup$ Jan 25 at 11:49
  • $\begingroup$ Can you please elaborate on how you get 9 from the text? $\endgroup$
    – Giskard
    Jan 25 at 11:51
  • $\begingroup$ Seems like you would need at least 9 of each input in both processes outlined? $\endgroup$
    – Giskard
    Jan 25 at 11:55

1 Answer 1

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I think it is simpler to analyze the production function first, and then use the definition of an isoquant.

Production function

Let's rewrite the production function in a more convenient way \begin{align*} f\left( z_1, z_2 \right) &= \min\left\lbrace z_1 + 2z_2, 2z_1 + z_2 \right\rbrace \\ &= \begin{cases} z_1 + 2z_2 && \text{if } z_1 + 2z_2 \leq 2z_1 + z_2 \\ 2z_1 + z_2 && \text{if } z_1 + 2z_2 > 2z_1 + z_2 \\ \end{cases} \\ &= \begin{cases} z_1 + 2z_2 && \text{if } z_2 \leq z_1 \\ 2z_1 + z_2 && \text{if } z_2 > z_1 \\ \end{cases} \end{align*} So the typical isoquant has a kink at $z_1 = z_2$, that is on along the 45° line.

Isoquant

Let $q$ be a fixed quantity. The level-q isoquant is given by the $z_1$ and $z_2$ that satisfy $f(z_1, z_2) = q$. Therefore, \begin{cases} z_1 + 2z_2 = q && \text{if } z_2 \leq z_1 \\ 2z_1 + z_2 = q && \text{if } z_2 > z_1 \\ \end{cases} Then, \begin{cases} z_2 = \frac{q - z_1}{2} && \text{if } z_2 \leq z_1 \\ z_2 = q - 2z_1 && \text{if } z_2 > z_1 \\ \end{cases} We end up with an equation $$ z_2 = \begin{cases} \frac{q - z_1}{2} && \text{if } z_2 \leq z_1 \\ q - 2z_1 && \text{if } z_2 > z_1 \\ \end{cases} $$

In words, the level-q isoquant is made of:

  • the line $z_2 = \frac{q - z_1}{2}$ in the space $z_2 \leq z_1$ (below the 45° line)
  • the line $z_2 = q - 2z_1$ in the space $z_2 > z_1$ (above the 45° line)

That is something we can draw. For example, for $q = 9$ we get enter image description here

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