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A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map. The slope of an indifference curve is called the MRS (marginal rate of substitution), and it indicates how much of good y must be sacrificed to keep the utility constant if good x is increased by one unit.
If the axes depicting coconut collection and leisure are reversed and plotted with Crusoe's indifference map and production function, [1] figure 2 can be drawn: Figure 2: The Robinson Crusoe economy's production function and indifference curves. The production function is concave in two dimensions and quasi-convex in three dimensions. This ...
They show the extent to which the firm in question has the ability to substitute between two different inputs (x and y in the graph) at will in order to produce the same level of output (see: Graph C)). They also represent different quantity combinations of two goods which adhere to a budget constraint. Thus, they can be used as a tool to help ...
Whether indifference curves are primitive or derivable from utility functions; and; Whether indifference curves are convex. Assumptions are also made of a more technical nature, e.g. non-reversibility, saturation, etc. The pursuit of rigour is not always conducive to intelligibility. In this article indifference curves will be treated as primitive.
Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it ...
The indifference curves are straight lines (when there are two goods) or hyperplanes (when there are more goods). Each demand curve (demand as a function of price) is a step function : the consumer wants to buy zero units of a good whose utility/price ratio is below the maximum, and wants to buy as many units as possible of a good whose utility ...
A curve connecting the tangency points is called the expansion path because it shows how the input usages expand as the chosen level of output expands. In economics , an expansion path (also called a scale line [ 1 ] ) is a path connecting optimal input combinations as the scale of production expands. [ 2 ]
The isocost line is always used to determine the optimal production combined with the isoquant line . if w represents the wage rate of labour, r represents the rental rate of capital, K is the amount of capital used, L is the amount of labour used, and C is the total cost of the two inputs, than the isocost line can be C=rK+wL