Isoquants and its properties


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Isoquants and its properties

  1. 1. <ul><li>Group members </li></ul><ul><li>Pankaj Singh </li></ul><ul><li>Aatif Ahmed </li></ul><ul><li>Mujahid Sayed </li></ul><ul><li>Wahid Khan </li></ul><ul><li>Samina Mirkar </li></ul><ul><li>Ramakrishnan Iyer </li></ul>
  2. 2. Isoquants and its Properties. <ul><li>Contents:- </li></ul><ul><li>Production & Production function. </li></ul><ul><li>Isoquants. </li></ul><ul><li>Types of isoquants. </li></ul><ul><li>Properties of isoquants. </li></ul><ul><li>Isocosts & equilibrium of producers. </li></ul>
  3. 3. Production <ul><li>What is production? </li></ul><ul><li>according to production manager </li></ul><ul><li>according to economist </li></ul>
  4. 4. 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)
  5. 5. Fixed Inputs <ul><li>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. </li></ul><ul><li>Example- </li></ul><ul><li>Buildings, major capital equipment and managerial personnel. </li></ul>
  6. 6. Variable Inputs <ul><li>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. </li></ul><ul><li>Example- </li></ul><ul><li>Raw materials and labour services. </li></ul>
  7. 7. Short Run <ul><li>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. </li></ul><ul><li>Example- </li></ul><ul><li>Using more of raw material and employing an increased number of workers with the existing plant and equipment. </li></ul>
  8. 8. Long Run <ul><li>Long run refers to that period of time in which all inputs are variable. </li></ul><ul><li>Example- </li></ul><ul><li>Installation of additional machine and employing more workers. </li></ul>
  9. 9. What are Isoquants? <ul><li>An isoquant is the locus of all the combinations of two factors of production that yield the same level of output. </li></ul>
  10. 10. Isoquant Table showing combinations of Labour and Capital Producing 100 units of X 2 9 6 3 6 5 4 4 4 5 3 3 7 2 2 10 1 1 Units of Capital Units of Labour Processes
  11. 11. Convex isoquant 4 2 L 7 4 2 4 K Y X O
  12. 12. Types of Isoquants <ul><li>Linear Isoquant </li></ul><ul><li>Input- Output Isoquant </li></ul>
  13. 13. Linear Isoquant <ul><li>A case of a perfect substitutability of production factors </li></ul><ul><li>Isoquants shapes of a straight line sloping downwards from left to right </li></ul>O X Y Y
  14. 14. Input- Output Isoquant <ul><li>Here factors of production are not substitutes but their coefficients are fixed </li></ul><ul><li>Shape of it is right angled or ‘L’ shaped </li></ul><ul><li>Also known as Leontief isoquant </li></ul>X Y
  15. 15. Isoquant Map <ul><li>Output varies as the factor input change. </li></ul><ul><li>Nearer the point of origin lower the production. </li></ul><ul><li>Complete set of isoquants for the producers </li></ul>O X Y
  16. 16. <ul><li>Isoquants nearer to the point of origin represent relatively lower level of production. </li></ul>
  17. 17. Assumptions:- <ul><li>There are only two factors or inputs of production. </li></ul><ul><li>Divisible into small units. </li></ul><ul><li>Technical conditions. </li></ul>
  18. 18. Characteristics or Properties of Isoquants <ul><li>Isoquants are negatively sloped. </li></ul><ul><li>A higher represents a larger output. </li></ul><ul><li>No two isoquants intersect or touch each other. </li></ul><ul><li>Isoquants are convex to the origin. </li></ul>
  19. 19. Isoquants are negatively sloped <ul><li>Isoquants having positively sloped segments </li></ul>
  20. 20. A higher represents a larger output <ul><li>Two isoquants representing different output levels </li></ul>
  21. 21. No two isoquants intersect or touch each other <ul><li>No two isoquants intersect one another </li></ul>
  22. 22. Isoquants are convex to the origin <ul><li>Convexity of an isoquant </li></ul>
  23. 23. Isocosts <ul><li>Various combinations of i/p that may be purchased for given amt of exp. </li></ul><ul><li>Isocosts is ratio of change of capital to labour. </li></ul><ul><li>Line close to origin indicates lower cost outlay. </li></ul>
  24. 24. Max o/p for a given cost <ul><li>AIM </li></ul><ul><li>Why Iso-quants & Iso-cost line ? </li></ul><ul><li>Position of the Producer. </li></ul><ul><li>Conditions for least cost comb. </li></ul><ul><li>Slope of IQ - MRTS </li></ul><ul><li>Slope of IC – Price factor </li></ul>
  25. 25. Minimisation of cost for given level of o/p <ul><li>AIM </li></ul><ul><li>Position of the Producer. </li></ul><ul><li>Condition for equilibrium same. </li></ul><ul><li>MRTS = factor price ratio </li></ul>
  26. 26. Limitations <ul><li>Merely describes i/p substitution method but does’nt explain it. </li></ul><ul><li>Exp. may summarize but unable to explain shape or posn. </li></ul><ul><li>Limited to 2 or 3 i/p’s. </li></ul><ul><li>Uninformative about new i/p’s. </li></ul>
  27. 27. THANKYOU