isoquantsanditsproperties

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Isoquants and its Properties.

Contents:-

Production & Production function. Isoquants.

Types of isoquants.

Properties of isoquants. Isocosts & equilibrium of producers.


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Production

What is production?

according to production manager

according to economist


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Production Function

The relationship between the inputs tothe production process and theresulting output is described by a

production function.

P(A)= f(L,K)


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Fixed Inputs

A Fixed input is defined as one whosequantity cannot be changed instantaneouslyin response to changes in market conditionsrequiring an immediate change in output.

Example-

Buildings, major capital equipment andmanagerial personnel.


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Variable Inputs

Variable input is one whose quantity can bechanged readily when market conditionssuggest that an immediate change in outputis beneficial to the producer.

Example-

Raw materials and labour services.


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Short Run

Short run is defined as that period of time inwhich quantity of one or more inputs remainsfixed irrespective of the volume of output.

Example-

Using more of raw material and employing anincreased number of workers with theexisting plant and equipment.


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Long Run

Long run refers to that period of time in whichall inputs are variable.

Example-

Installation of additional machine andemploying more workers.


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What are Isoquants?

An isoquant is the locus of all the combinations

of two factors of production that yield thesame level of output.


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Isoquant Table showing combinations of Labour andCapital Producing 100 units of X

Processes Units ofLabour

Units ofCapital

1 1 10

2 2 7

3 3 5

4 4 4

5 6 3

6 9 2


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Convex isoquant

4

2

L

7

4

2 4

K

Y

XO


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Types of Isoquants

Linear Isoquant

Input- Output Isoquant


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Linear Isoquant

A case of a perfect substitutability of production factors Isoquants shapes of a straight line sloping downwards

from left to right

O X

YY


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Input- Output Isoquant

Here factors of production are not substitutes but theircoefficients are fixed

Shape of it is right angled or L shaped

Also known as Leontief isoquant

X

Y


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Isoquant Map

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

O X

Y


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Isoquants nearer to the point of originrepresent relatively lower level of production.


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Assumptions:-

There are only two factors or inputs ofproduction.

Divisible into small units.

Technical conditions.


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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.


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Isoquants are negatively sloped

Isoquants having positively sloped segments


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A higher represents a larger output

Two isoquants representing different output levels


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No two isoquants intersect or toucheach other

No two isoquants intersect one another


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Isoquants are convex to the origin

Convexity of an isoquant


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Isocosts

Various combinationsof i/p that may bepurchased for given

amt of exp. Isocosts is ratio of

change of capital tolabour.

Line close to originindicates lower costoutlay.


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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


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Minimisation of cost for givenlevel of o/p

AIM

Position of the

Producer.

Condition forequilibrium same.

MRTS = factor priceratio


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Limitations

Merely describes i/p substitution method butdoesnt explain it.

Exp. may summarize but unable to explainshape or posn.

Limited to 2 or 3 i/ps.

Uninformative about new i/ps.


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