Question 1 Level Matters in Production Side In the consumers

Question 1: Level Matters in Production Side In the consumers problem if we take a monotone transformation of the consumers utility function the consumers choices are unchanged. If we rescale a firms production function by a monotonic transformation, will the quantity produced stay the same? Explain the difference

Solution

Monotonic transformation of utility function does not change the relative ranking of bundles of goods

In case of rescaling of production function by a monotonic transformation the constrain in the expenditure minimisation problem is changed so that resulting cost function changes. Given that cost has changed the quantities that are chosen to maximise profits also change. Thus quantity produced doesn\'t remain same