This document discusses production functions, isoquants, marginal rate of technical substitution (MRTS), and returns to scale. It defines a production function as relating the quantity of output to amounts of inputs like capital, labor, and materials. Isoquants represent combinations of two inputs that produce the same output level. MRTS measures the change in one input as another changes while holding output constant. Returns to scale refer to how output changes when all inputs change proportionally, with constant, decreasing, and increasing types defined based on whether output doubles, less than doubles, or more than doubles respectively with a doubling of all inputs.

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

14. Thank you