Group membersPankaj Singh

Aatif AhmedMujahid Sayed

Wahid KhanSamina Mirkar

Ramakrishnan Iyer

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.

Example- Buildings, 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.

Example- Raw 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.

Example- Using 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.

Example- Installation 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 Units of Labour

Units of Capital

1 1 102 2 73 3 54 4 45 6 36 9 2

Convex isoquant

4

2

L

7

4

2 4

K

Y

XO

Types of Isoquants

Linear Isoquant

Input- Output Isoquant

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

Input- Output Isoquant

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

X

Y

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

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 does’nt explain it.

Exp. may summarize but unable to explain shape or posn.

Limited to 2 or 3 i/p’s. Uninformative about new i/p’s.