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ISOQUANTS
Equal Quantity of Production
MEANING OF ISOQUANTS
• Isoquants are the curves, which represent the
different combinations of inputs producing a
particular quantity of output
• Any combination on the isoquant represents the
some level of output
• Isoquant is a production function with two variables
inputs, which are substitutable for one another
within limits
• Thus an isoquant shows all possible combinations of
two inputs, which are capable of producing equal or a
given level of output
Equation : Q = f (L,K) 2
ASSUMPTIONS OF ISOQUANTS
• There are only two factors of production.
• The two factors can substitute each other up to
certain limit.
• The shape of the isoquants depends upon the
extent of substitutability of the two inputs.
• The technology is given over a period
3
AN ISOQUANT MAY BE EXPLAINED
WITH THE HELP OF AN
ARITHMETICAL EXAMPLES
4
Combinations Labour
(units)
Capital
(units)
Output
(quantity)
A 1 10 50
B 2 7 50
C 3 4 50
D 4 3 50
E 5 1 50
ISOQUANT CURVE :
5
1, 10
2, 7
3, 4
4, 3
5, 1
0
2
4
6
8
10
12
0 1 2 3 4 5 6
C
a
p
i
t
a
l
(
K
)
Labour (L)
ISOQUANTS
FEATURES
OF ISOQUANTS
It is a downward sloping curve
It is convex to origin
It does not intersect
It does not touch axis
6
MARGINAL RATE OF TECHNICAL SUBSTITUTION
MARGINAL RATE OF TECHNICAL SUBSTITUTION
(MRTS)
(MRTS)
• MRTS refers to the rate at which one input factor is
substituted with the other to attain a given level of
output
• It is measured as
MRTS = changes in one input/changes in another input
7
Combinati
ons
Labour
(units)
Capital
(units)
Output
(quantity)
MRTS
A 1 10 50 ----
B 2 7 50 1:3
C 3 4 50 1:3
D 4 3 50 1:1
E 5 1 50 1:1
ISOCOSTS
Equal Cost of Production
DEFINITION OF ISOCOSTS
 Isocosts refers to that cost curve that represents
the combination of inputs that will cost the
producer the same amount of money.
 In other words, each isocost denotes a particular
level of total cost for a given level of production. If
the given level of production changes, the total cost
changes and thus the isocost curve moves upwards.
And vice versa.
9
ISOCOST
CURVE
 In the following figure three downwards sloping
straight line cost curves each costing Rs.1.0 lakh,
Rs. 1.5 lakh and Rs. 2.0lakh for the output levels of
20,000, 30,000 and 40,000 units. Isocosts farther
from the origin, for given input costs, are
associated with higher costs. Any change in input
prices changes the slope of isocost lines
10
ISOCOSTS VS. ISOQUANTS
11
THANK
YOU

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Isoquants and Isocosts.pdf

  • 2. MEANING OF ISOQUANTS • Isoquants are the curves, which represent the different combinations of inputs producing a particular quantity of output • Any combination on the isoquant represents the some level of output • Isoquant is a production function with two variables inputs, which are substitutable for one another within limits • Thus an isoquant shows all possible combinations of two inputs, which are capable of producing equal or a given level of output Equation : Q = f (L,K) 2
  • 3. ASSUMPTIONS OF ISOQUANTS • There are only two factors of production. • The two factors can substitute each other up to certain limit. • The shape of the isoquants depends upon the extent of substitutability of the two inputs. • The technology is given over a period 3
  • 4. AN ISOQUANT MAY BE EXPLAINED WITH THE HELP OF AN ARITHMETICAL EXAMPLES 4 Combinations Labour (units) Capital (units) Output (quantity) A 1 10 50 B 2 7 50 C 3 4 50 D 4 3 50 E 5 1 50
  • 5. ISOQUANT CURVE : 5 1, 10 2, 7 3, 4 4, 3 5, 1 0 2 4 6 8 10 12 0 1 2 3 4 5 6 C a p i t a l ( K ) Labour (L) ISOQUANTS
  • 6. FEATURES OF ISOQUANTS It is a downward sloping curve It is convex to origin It does not intersect It does not touch axis 6
  • 7. MARGINAL RATE OF TECHNICAL SUBSTITUTION MARGINAL RATE OF TECHNICAL SUBSTITUTION (MRTS) (MRTS) • MRTS refers to the rate at which one input factor is substituted with the other to attain a given level of output • It is measured as MRTS = changes in one input/changes in another input 7 Combinati ons Labour (units) Capital (units) Output (quantity) MRTS A 1 10 50 ---- B 2 7 50 1:3 C 3 4 50 1:3 D 4 3 50 1:1 E 5 1 50 1:1
  • 9. DEFINITION OF ISOCOSTS  Isocosts refers to that cost curve that represents the combination of inputs that will cost the producer the same amount of money.  In other words, each isocost denotes a particular level of total cost for a given level of production. If the given level of production changes, the total cost changes and thus the isocost curve moves upwards. And vice versa. 9
  • 10. ISOCOST CURVE  In the following figure three downwards sloping straight line cost curves each costing Rs.1.0 lakh, Rs. 1.5 lakh and Rs. 2.0lakh for the output levels of 20,000, 30,000 and 40,000 units. Isocosts farther from the origin, for given input costs, are associated with higher costs. Any change in input prices changes the slope of isocost lines 10