Study the image given and answer the questions.
Which of the following statement (s) is/are correct?
Statement 1: The concept of Isoquant is similar to a production possibility frontier (PPF) curve.
Statement 2: Each isoquant represents a particular level of output and is labelled with that amount of output.
Answer & explanation
Correct answer: option 2
The correct answer is option 2: Only Statement 2 is correct.
Statement 1: The concept of Isoquant is similar to a production possibility frontier (PPF) curve.This statement is incorrect because while both curves represent trade-offs, they are conceptually different:
- An isoquant represents different input combinations that produce the same level of output.
- A PPF represents different output combinations that can be produced with a given set of inputs.
- Isoquants belong to firm-level production theory, while PPF applies to economy-wide resource allocation.
- Since they deal with different variables, they are not similar.
- An Isoquant is similar to an indifference curve in consumer theory but applies to production instead of utility.
Statement 2: Each isoquant represents a particular level of output and is labelled with that amount of output. This is a correct definition of an isoquant. Each isoquant represents a specific quantity of output.