# Iso quants

It will be called Iso quants price-factor curve. It implies that in these portions of the isoquants, the marginal product of labour and capital is positive.

The vertical straight line LM is drawn on the assumption that labour is held constant at OL and output is expanded by adding more capital. A profit maximisation firm faces two choices of optimal combination of factors inputs: In economicsan isoquant derived from quantity and the Greek word iso, meaning equal is a contour line drawn through the set of points at which the same Iso quants of output is produced while changing the quantities of two or more inputs.

It means that at some point it begins to recede from each axis. The output can only be increased if there is no increase in the cost of the factors. Typically inputs X and Y would refer to labor and capital respectively.

The different returns to a factor can be explained as follows: This analysis is based on the following assumptions: It is called output path. In the up dotted portion, more capital and in the lower dotted portion more labour than necessary is employed. Shapes of Isoquants[ edit ] If the two inputs are perfect substitutes, the resulting isoquant map generated is represented in fig.

In the theory of production, the profit maximisation firm is in equilibrium when, given the cost-price function, it maximises its profits on the basis of the least cost combination of factors.

First, to minimise its cost for a given output; and second, to maximise its output for a given cost. With the help of Isoquant diagram, we can draw the difference between returns to scale and returns to factor. If keeping OR3 units of labour constant, more than OM3 units of labour are used, the total output will be less than 60 quintals of wheat.

The downward sloping iso-product curve can be explained with the help of the following figure: It means that the marginal rate of technical substitution is diminishing. From the above schedule iso-product curve can be drawn with the help of a diagram.

Returns to a factor Iso quants change in Iso quants refers one input is held constant while production is expanded by increasing the quantity of the other input. The isoquant AH reveals that as the units of labour are successively increased into the factor- combination to produce units of good X, the reduction in the units of capital becomes smaller and smaller.

We further extend it to the prices of the inputs as represented on the isoquant map by the iso-cost curves. This means an increasing marginal product of labour. Different factors are needed to produce a good. In other words, the marginal rate of technical substitution of labour for capital MRTSLC must be diminishing at the point of tangency for equilibrium to be stable.

If the price of labour falls the firm could buy more of labour and the line will shift away from the origin. Further, JK quantity of labour is required to raise output from to and KL of labour to raise output from to Adding one input while holding the other constant eventually leads to decreasing marginal output, and this is reflected in the shape of the isoquant.

Increasing returns to scale also result from specialisation and division of labour. Returns to a factor relate to the short period production function when one factor is varied keeping the other factor fixed in order to have more output, the marginal returns of the variable factor diminish.

If is kept constant and the amount of variable factor, labour, is doubled by LL2 we reach point which lies on a still lower level of output represented by the isoquant Example of production function: If one of the two factors has negative marginal product the IQ slopes upwards from left to right.

The firm aims at profit maximisation.

This means diminishing marginal product of labour. Comment An Iso-Quant curve drawn to the right hand side of an existing Iso-Quant curve represents higher output If the manufacturer selects combination M, he would be using 2 units of capital and 4 units of labour, but if he selects combination N, he will be using 4 units of capital and 4 units of labour.

It means that in order to double the output from toless than double the amounts of both factors will be required. The first condition is that the slope of the isocost line must equal the slope of the isoquant curve.The term "isoquant," broken down in Latin, means “equal quantity,” with “iso” meaning equal and “quant” meaning quantity.

The isoquant curve. Definition: An Iso-quant curve shows the different combinations of factors of production Viz. Labor and Capital employed to yield the given. Isocost and isoquants play the same role in producer’s equilibrium as that played by the budget line and indifference curves in consumer’s equilibrium.

Isocost curve is a producer’s budget line while isoquant is his indifference curve. Iso quants are equal revenue lines (a) True (b) False: 2. Iso quant is sloping downwardso when.

Home» Production Function» Properties of Isoquants: Each Isoquant is Oval Shaped: The iso product curve, is elliptical.

This means that the firm produces only those segments of the iso-product curves which are convex to the origin and lie between the ridge lines. This is the economic region of production. An isoquant (derived from quantity and the Greek word iso, meaning equal) is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs.

While. What are isoquants? Update Cancel. ad by Yale School of Management. showing different input combinations which result in the same level of output.

This graph is called Iso-quant curve (Iso - eqaul; quant - quantity) these curves are isoquants (iso=same;quants=quantity).

Iso quants
Rated 3/5 based on 19 review