EEFA - ISOQUANT - FINAL YEAR CS/IT - SRI SAIRAM INSTITUTE OF TECHNOLOGY - DR,K,BARANIDHARAN

Dr.K.BaranidharanPresent by…

Engineering Economics &

Financial Accountingment

Ee&fa2April 12, 2023

ISOQUANTISOQUANT

ISOQUANT- ISOCOST ANALYSISISOQUANT- ISOCOST ANALYSIS

• Isoquant

• A line indicating the level of inputs required

to produce a given level of output

• Iso- meaning - ‘Equal’

• -’Quant’ as in quantity

• Isoquant – a line of equal quantity

• Isoquant

• A line indicating the level of inputs required

to produce a given level of output

• Iso- meaning - ‘Equal’

• -’Quant’ as in quantity

• Isoquant – a line of equal quantity

ISOQUANTSISOQUANTS

• An isoquant curve shows various An isoquant curve shows various combinations of two input factors such as combinations of two input factors such as capital and labour , which yield the same capital and labour , which yield the same level of output.level of output.

• An isoquant curve represent all such An isoquant curve represent all such combinations which yield equal quantity of combinations which yield equal quantity of the output and any or every combination is the output and any or every combination is a good combination of the manufacture.a good combination of the manufacture.

• Since he prefers all these combination Since he prefers all these combination equally, an isoquant curve is also called equally, an isoquant curve is also called “product indifference curve”“product indifference curve”

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)An isoquant yielding output (TPP) of 5000 unitsAn isoquant yielding output (TPP) of 5000 units

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An isoquant yielding output (TPP) of 5000 unitsAn isoquant yielding output (TPP) of 5000 units

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An isoquant yielding output (TPP) of 5000 unitsAn isoquant yielding output (TPP) of 5000 units

Features of ISOQUANTSFeatures of ISOQUANTS

• DOWNWARD SLOPING:DOWNWARD SLOPING:

• An isoquant must slope An isoquant must slope downwoards from left to rightdownwoards from left to right

• Which implies that using more Which implies that using more of one input to produce the of one input to produce the same level of output must imply same level of output must imply using less of the other inputsusing less of the other inputs

• CONVEX TO ORIGIN:CONVEX TO ORIGIN:

• Isoquants are convex to the orgine.Isoquants are convex to the orgine.

• It is because the input factors are not It is because the input factors are not perfect substitutes.perfect substitutes.

• One input factor can be substituted by One input factor can be substituted by another input factor in a “another input factor in a “diminishing diminishing marginal ratemarginal rate””

• If the input factors were perfect If the input factors were perfect substitutes, the isoquant would be a substitutes, the isoquant would be a falling falling straight linestraight line..

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Isoquant where input factors are perfect substitutesIsoquant where input factors are perfect substitutes

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Assumptions

TC = 200 000

TC = 300 000

TC = 400 000

TC = 500 000

• When the input are used in a fixed When the input are used in a fixed proportion and substitution of one proportion and substitution of one input for other cannot take place, the input for other cannot take place, the isoquant will be L shaped.isoquant will be L shaped.

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Isoquants where input Isoquants where input are used in a fined are used in a fined proportionproportion Complementary inputs MRTS=0

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

DO NOT INTERSECT: Two isoquants do not intersect. It is because each of these denote a

particular level of output.

If a manufacturer wants to operate at a higher level of output, he has to switch over to another isoquants with a higher level of output.

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An isoquant mapAn isoquant map

• DOES NOT TOUCH AXES:DOES NOT TOUCH AXES:

• The Isoquants touches neither x The Isoquants touches neither x nor Y axis as both input are nor Y axis as both input are required to produce a given required to produce a given productproduct

Dr.K.BaranidharanTHANK YOU