Isoquants and its Properties.

Contents: Production & Production function. Isoquants. Types of isoquants. Properties of isoquants. Isocosts & equilibrium of producers.

Production

What is production? according to production manager

according to economist

Production Function
The relationship between the inputs to the production process and the resulting output is described by a production function. P(A)= f(L,K)

Fixed Inputs

A Fixed input is defined as one whose quantity cannot be changed instantaneously in response to changes in market conditions requiring an immediate change in output. ExampleBuildings, major capital equipment and managerial personnel.

Variable Inputs

Variable input is one whose quantity can be changed readily when market conditions suggest that an immediate change in output is beneficial to the producer. ExampleRaw materials and labour services.

Short Run

Short run is defined as that period of time in which quantity of one or more inputs remains fixed irrespective of the volume of output. ExampleUsing more of raw material and employing an increased number of workers with the existing plant and equipment.

Long Run

Long run refers to that period of time in which all inputs are variable. ExampleInstallation of additional machine and employing more workers.

What are Isoquants?

An isoquant is the locus of all the combinations of two factors of production that yield the same level of output.

Isoquant Table showing combinations of Labour and Capital Producing 100 units of X

Processes 1 2 3 4 5 6

Units of Labour 1 2 3 4 6 9

Units of Capital 10 7 5 4 3 2

Convex isoquant
K 7

2 X O Y 2 4 L

Types of Isoquants

Linear Isoquant Input- Output Isoquant

Linear Isoquant
Y Y

A case of a perfect substitutability of production factors Isoquants shapes of a straight line sloping downwards from left to right

Input- Output Isoquant

Y

Here factors of production are not substitutes but their coefficients are fixed Shape of it is right angled or L shaped Also known as Leontief isoquant

Isoquant Map

Output varies as the factor input change. Nearer the point of origin lower the production. Complete set of isoquants for the producers
Y

Isoquants nearer to the point of origin represent relatively lower level of production.

Assumptions:

There are only two factors or inputs of production. Divisible into small units.

Technical conditions.

Characteristics or Properties of Isoquants

Isoquants are negatively sloped.

A higher represents a larger output. No two isoquants intersect or touch each other. Isoquants are convex to the origin.

Isoquants are negatively sloped

Isoquants having positively sloped segments

A higher represents a larger output

Two isoquants representing different output levels

No two isoquants intersect or touch each other

No two isoquants intersect one another

Isoquants are convex to the origin

Convexity of an isoquant

Isocosts

Various combinations of i/p that may be purchased for given amt of exp. Isocosts is ratio of change of capital to labour. Line close to origin indicates lower cost outlay.

Max o/p for a given cost

AIM

Why Iso-quants & Iso-cost line ?

Position of the Producer.

Conditions for least cost comb.

Slope of IQ - MRTS

Slope of IC Price factor

Minimisation of cost for given level of o/p

AIM Position of the Producer. Condition for equilibrium same. MRTS = factor price ratio

Limitations

Merely describes i/p substitution method but doesnt explain it. Exp. may summarize but unable to explain shape or posn. Limited to 2 or 3 i/ps. Uninformative about new i/ps.