What are isoquants explain the properties of isoquants. Properties of Isoquants 2022-10-11
What are isoquants explain the properties of isoquants Rating:
An isoquant is a curve on a graph that represents the various combinations of inputs that can be used to produce a given level of output. In other words, it is a graphical representation of the cost-minimizing combinations of inputs needed to produce a given level of output.
There are several properties of isoquants that are important to understand. First, isoquants are downward sloping, which means that as more of one input is used, less of the other input is needed to produce the same level of output. This is because using more of one input allows for a greater level of production, so less of the other input is needed to reach the same level of output.
Second, isoquants are convex to the origin, which means that the marginal rate of technical substitution (MRTS) between inputs decreases as more of one input is used. This can be seen by the fact that the slope of the isoquant becomes less steep as we move down the curve. This is because as more of one input is used, it becomes increasingly difficult to substitute it with the other input, which means that the MRTS decreases.
Third, isoquants are not necessarily straight lines, but rather can be curved. This is because the MRTS between inputs can change depending on the level of production. For example, if a firm is producing at a very low level, it may be able to substitute inputs relatively easily, which would result in a relatively straight isoquant. However, as production increases, the MRTS may decrease, resulting in a more curved isoquant.
Overall, isoquants are a useful tool for understanding the cost-minimizing combinations of inputs needed to produce a given level of output. They help firms to make decisions about how to use their inputs most efficiently in order to maximize profits.
Properties of Isoquants
With one variable input. An isoquant is convex to the origin because of the diminishing marginal rate of technical substitution. This is shown in Figure-8. If these intersects, then the results will be incorrect. Defining differently, an isoquant is the contour of all the combination of two factors that give rise to a same level of output. But, in the long-term, a firm can invest in increasing capital stock and produce at a higher output for the same quantity of labour.
Two Isoquants Never Intersect Each Other: Two isoquants representing different levels of output can never intersect. Higher the isoquant, higher will be the level of output produced. ADVERTISEMENTS: The table further shows that as the producer uses more of one factor input, labour in the table, it reduces the use of other factor. If production occurs at A, the firm would use OK, units of capital and OL, units of labour. As per the figure, at point A, different combinations on IQ1 and IQ2 produces the same level of output which is not feasible. If an isoquant touches Y axis, it would mean that without using any capital the firm can produce output with the help of labour alone.
Isocost An isocost shows all the combination of factors that cost the same to employ. Why isoquants are negatively sloped? Here we will observe that a firm attains the highest possible level of output for any given level of cost or the lowest possible cost for producing any level of output when the MRTS for any two inputs equals the ratio of their prices. This is possible because, at a higher curve, more factors of production are employed either the capital or the labor, which results in more production. What are Isoquants and Isocosts? Similarly, the combination at point K can be ruled out because of the positive slope. Hence the isoquant is always convex to the origin. All these combinations are plotted in Figure-8. K Where, C is the total outlay incurred by the firm on the two factors; the w and L are the price of labour or wage rate and number of labour units and, r and K are the price of capital or interest rate and number of capital units, respectively.
TOTAL COST : Total Cost refers the sum total of all costs incurred by the producer to produce goods and services. If we plot this information in a graph paper, we will obtain production indifference curve or equal output curve, as shown in Fig. The MRTS is calculated as shown in Table 2 Labour Capital MRTS 6 40 7 28 12:1 8 18 10:1 9 12 6:1 10 8 4:1 Table 2: MRTS Types of Isoquant Curve There is a continuous substitution of one input variable by the other input variable at a diminishing rate. Why are Isoquants convex? Ridge Lines: The Economic Region of Production. In the figure, we can see that there are two isoquant curves Iq 1 and Iq 2.
Why do isoquants never cross? So, a rational producer maximises output by choosing the least- cost combination of inputs, the prices of which are taken as given i. In the figure, isoquant Q 1 represents a lower level of output as compared to isoquant Q 2 and Q 3. No isoquant can touch either axis: If an isoquant touches X axis then it would mean that without using any labour the firm can produce output with the help of capital alone. Only one combination of labour and capital is possible to produce a product with affixed proportion of inputs. Each and every point on an isoquant represents the same level of output. An isocost line is the producers what a budget line is to a consumer.
To remain on the same isoquant or to maintain the same level of output, the positive and negative factor contributions should be equal. This shows that a higher isoquant will represent a higher level of output vis-a-vis a lower isoquant. For any movement along an isoquant, the MRTS equals the ratio of the marginal products of the two inputs. Thus, the isoquant curve is convex to the origin. In other words, it shows different combinations of factors that can be purchased at a certain amount of money. By definition certain factors of production e.
In other words, a downward slope suggests that both the inputs have positive marginal products. They give the boundaries of the economic region of production where input substitution takes place. While a smooth and convex isoquant is its normal shape, there are a few exceptional shapes as well, two of which are discussed below: Linear Isoquant: This type of isoquant are depicted by a straight line sloping downward from left to right, as shown in Figure-8. The slope of an isoquant is MRTS. Similarly, isoquant Q 2 shows the various combinations of capital and labour that can produce 200 units of output. Which means that, with an increase in the labor, more capital is to be employed to have a constant production. If the producer moves to the right or left of point E along the same isoquant, cost will rise.
Such a shape of isoquant also means that the marginal factor productivities are positive, that is more of a factor will make a positive contribution in production and less of other factor will make a negative contribution. The answer is, clearly, 5. Even at other points, two intersecting isoquants will produce absurd results which will make it impossible to decide which one of them represents a higher level of output — a higher isoquant will show a higher level of output at one point and lower output at other point. A firm can produce a certain amount of a commodity by employing different combinations of labour and capital. Each of the points R 1, R 2, R 3, R 4 and R 5 on the curve shows a capital-labour combination that can produce 1000 units of output. It indicated a perfect and unlimited substitutability between two factors implying that the product may be produced even by using only capital or labour or by infinite combinations of the two factors. As such — Such behaviour of an isoquant is based on the principle of diminishing MRTS.