1. ISOQUANTS AND RETURNS TO SCALE
PRESENTED BY-KARTIKEYA
KARTIKEYA SINGH
KRISHNAVATAR
KSHITIJ
2. Content
• Production function and Isoquant
• Isoquant or Iso-product map
• MRTS
• Returns to Scale
3. Production Function and Isoquant
• Letting q represent the output of a particular good
during a period, K represent capital use, L represent
labor input, and M represent raw materials, the
following equation represents a production function.
q f ( K , L, M )
4. Two-Input Production Function
• While the choices of inputs will obviously vary with
the type of firm, a simplifying assumption is often
made that the firm uses two inputs, labor and
capital.
q f ( K , L)
5. Isoquant
• In economics, 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.
6. Features of Isoquants
• Isoquant have a negative slope
• Isoquant are convex to the origin
• Isoquant cannot intersect or be tangent to each
other
• Upper isoquant represent higher level of outpu
7. MRTS
• In economic theory, the Marginal Rate of Technical
Substitution (MRTS) - or Technical Rate of Substitution
(TRS) - is the amount by which the quantity of one
input has to be reduced when one extra unit of
another input is used, so that output remains
constant .
8. Returns to scale
• Returns to scale is the rate at which output
increases in response to proportional increases in all
inputs.
• In the eighteenth century Adam Smith became
aware of this concept when he studied the
production of pins.
9. Constant Returns to Scale
• A production function is said to exhibit constant
returns to scale if a doubling of all inputs results in a
precise doubling of output.
10. Constant Returns to Scale
• Isoquants for constant returns to scale
Capital
per week
4
q = 40
3
q = 30
2
q = 20
1
q = 10
0 1 2 Labor
3 4 per week
(a) Constant Returns to Scale
11. Decreasing returns to scale
• If doubling all inputs yields less than a doubling of
output, the production function is said to exhibit
decreasing returns to scale.
12. Decreasing returns to scale
• Isoquants showing decreasing returns to scale.
Capital A Capital A
per week per week
4 4
q = 40
3 3 q = 30
q = 30
2 2
q = 20 q = 20
1 1
q = 10 q = 10
0 1 2 3 4 per weekLabor 0 1 2 3 4 Labor
per week
(a) Constant Returns to Scale (b) Decreasing Returns to Scale
13. Increasing Returns to Scale
• If doubling all inputs results in more than a doubling
of output, the production function exhibits
increasing returns to scale
Capital A
per week
4
3
q = 40
2 q = 30
q = 20
1
q = 10
0 1 2 3 4 Labor
per week
(c) Increasing Returns to Scale
