How to read this
Firm D needs both technologies, so it produces the smaller of the two outputs; its isoquant has a kink on the ray , where . Firm C uses the better technology; its isoquant bends inwards.
- Move with Firm D: the isocost line turns around the kink, and the cheapest bundle stays there for every slope between the two dotted lines.
- There, does not change with : the substitution effect is zero, only the scale effect is left.
- Switch to Firm C: the cheapest bundle jumps at , and the middle of the chord lies below the isoquant, so is not quasi-concave.
Firm
Technologies
Prices and output
The cheapest way to produce
, and the firm's isoquant; isocost line through the cheapest bundle .