ECONOMICS-ISOQUANTS

1. MANAGERIAL ECONIMICS
UNIT-3

2. ISOQUANTS
ISOCOST
EXPANSION PATH

3. ISOQUANTS
ISO= SAME
QUANT=QUANTITY

4. ISOQUANTS
• A production isoquant (equal output course) is the
locus of all those combinations of two inputs which
yields a given level of output
• With two variable inputs, capital and labour, the
isoquant gives, the different combinations of capital
and labour, that produces the same level of output.

5. ISOQUANTS
• Each Iso-quant curve stands for a specific quantity of
output.
• A number of curves can be drawn for different
specific quantities of output.
• All these curves together form the Iso-quant map.

6. An Isoquant
6
0 1 2 3 4 5 6 7 8 9 10
Capital,
K
(machines
rented)
2
4
6
8
10
Labor, L (worker-hours
employed)
i
j
Quantity of Soybeans = 1 (kg./hour)
Each point on a given isoquant represents
different recipes for producing the same
level of output.
12

7. An Isoquant Map
7
k
0 1 2 3 4 5 6 7 8 9 10
Capital,
K
(machines
rented)
Labor, L (worker-hours employed)
j
Quantity of Soybeans = 1 (kg./hour)
Quantity of Soybeans = 2 (kg./hour)
0
1
2
3
4
5
6
7
8
9
10
m
Different isoquants represents different
levels of output.

8. Difference between Iso-quant curve and
Indifference curve
 Indifference curve refers to two commodities. Iso-quant curve relates to
combination of two factors of production.
 Indifference curve indicates level of satisfaction. Is-quant curve indicates
quantity of output.
 No numerical measurement of satisfaction is possible. So it cannot be
labeled.
 Iso-quant curve can be easily labeled, as physical units out output are
measurable.
 The extent of difference of satisfaction is not quantifiable in the
Indifference map. But in Iso-quant map, we can measure the exact
difference between quantities represented by one curve and another.

9. Properties of Iso-quants:
• Isoquants have a negative slope
• Isoquants are convex to the origin
• Iso-quants do not intersect
• Isoquants do not intercept either X or Y axis’ Upper
isoquant represent higher level of output

10. TYPES OF ISOQUANTS
• 1. Linear Isoquant: In this case, the isoquant would
be straight lines assumes perfect substitutability of
factors of production.
• In this case, labour and capital are perfect
substitutes, that is, the rate at which labour can be
substituted for capital in production is constant.

11. Right Angled Isoquant:
• This assumes zero substitutability of the factors of production.
• There is only one method of producing any one commodity. In
this case, the isoquant takes the form of a right angle
• This isoquant is called input-output isoquant or Leontief
isoquant after Leontief, who invented the input-output
analysis.

12. Smooth Convex Isoquant:
• This type of isoquant assumes continuous
substitutability of capital and labour over a
certain range, beyond which the factors
cannot substitute each other.

13. Various Combinations of Labour and Capital to
Produce 20 Units of Output
Factor
Combination
Labour Capital
A 1 15
B 2 11
C 3 8
D 4 6

14. Marginal Rate of Technical Substitution
• The MRTS is the slope of an Isoquant &
measures the rate at which the two inputs can
be substituted for one another while
maintaining a constant level of output
• MRTS= - ΔK / Δ L

15. ISOCOST
• Shows various combination of inputs which may be purchased
for given level of cost and price of inputs.
• Co = w.L + r.K
• •This equation will be satisfied by different combinations of L
and K. the locus of all such combinations is called equal cost
line/ or isocost line

16. EXPANSION PATH
• Economists Alfred Stonier and Douglas
Hague defined expansion path as "that line
which reflects the least cost method of
producing different levels of output, when
factor prices remain constant

18. MRTS
• A firm is producing output using labour and
capital in a such a quantities that marginal
product of labour is 15, and marginal product
of capital is 8. The wage rate for labour is Rs.
3 and price of capital is Rs. 2. Is the firm using
efficient factor combination for production? If
not, what it should do to achieve economic
efficiency?

19. 2
• The wage of labour is Rs. 6 and price of raw
material is Rs. 2. The marginal product of
labour is 16 while the marginal product of raw
materials is 4. Can a firm operating under
these conditions be maximizing profits?

20. 3
• A firm reports that marginal product of labour
is 5 and marginal rate of technical substitution
of labour for capital is 2. What is the marginal
product of capital?

21. 4
• A firm employs labour as the only variable
factor along with a fixed quantity of capital.
Wage rate of labour is Rs. 100 per dayand its
marginal product is 20 units of output. What is
marginal cost of product?

22. LABOUR TOTAL PRODUCT MARGINAL PRODUCT AVERAGE PRODUCT OTUPUT ELASTICITY
OF LABOUR
L Q MP AP El
1 80
2 170
3 270
4 368
5 430
6 480
7 504
8 504
9 495
10 480

23. LABOUR TOTAL PRODUCT MARGINAL
PRODUCT
AVERAGE PRODUCT OTUPUT ELASTICITY
OF LABOUR
L Q MP AP El
1 80 80 80 1
2 170 90 85 1.06
3 270 100 90 1.11
4 368 98 92 1.06
5 430 62 86 0.72
6 480 50 80 0.62
7 504 24 72 0.33
8 504 0 63 0
9 495 -9 55 -0.16
10 480 -15 48 -0.31