productionWhen an isoquant is smooth and convex to the origin, then its slope (also known as the marginal rate of technical substitution) will show a diminishing marginal rate of technical substitution.
What is an intuitive explanation for this?
I understand that in the case of a consumer’s indifference curve that is also smooth and convex to the origin, its slope is diminishing because as a good becomes scarcer, we will need to offer more of another good in order to induce that consumer to give up that scarce good (Law of substitution) to maintain the same utiliy level. How can a similar explanation be applied to an isoquant?
Thank you.
Let’s say you have two factors of production, e.g. labor and machinery. Each is a limiting factor of the productivity of the other. If you have a million machines and 5 workers, you don’t have enough workers to get the most out of those machines. If you have a million workers and 2 machines, you don’t have enough machines to get the most out of those workers. In this case, labor and machinery are imperfect substitutes because each factor affects how much you get out of the other factor.
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