Suppose that the production function for owner-operators in the truckload sector of the motor carrier industry required that capital and labor be used in fixed proportions: one driver with each truck.
(a) Identify the production function for owner-operator services and graphically depict the set of isoquants for this production function.
(b) Define the elasticity of substitution and discuss the extent to which capital and labor are substitutable for this production technology.
(c) Graphically identify the optimal use of capital and labor for a given set of labor and capital input prices, w and r respectively. What effect on the optimal capital-labor ratio will occur if the relative labor wages increase 10%, all else held constant?
(d) When truckload services are produced with this technology, what will be the impact on output if capital and labor increase 15%?