Group members Pankaj Singh Aatif Ahmed Mujahid Sayed Wahid Khan Samina Mirkar Ramakrishnan Iyer
Group membersPankaj Singh
Aatif AhmedMujahid Sayed
Wahid KhanSamina Mirkar
Ramakrishnan Iyer
Isoquants and its Properties.
Contents:- Production & Production function. Isoquants. Types of isoquants. Properties of isoquants. Isocosts & equilibrium of producers.
Production
What is production?
according to production manager
according to economist
Production Function
The relationship between the inputs to the production process and the resulting output is described by a production function.
P(A)= f(L,K)
Fixed Inputs A Fixed input is defined as one whose
quantity cannot be changed instantaneously in response to changes in market conditions requiring an immediate change in output.
Example- Buildings, major capital equipment and
managerial personnel.
Variable Inputs Variable input is one whose quantity can be
changed readily when market conditions suggest that an immediate change in output is beneficial to the producer.
Example- Raw materials and labour services.
Short Run Short run is defined as that period of time in
which quantity of one or more inputs remains fixed irrespective of the volume of output.
Example- Using more of raw material and employing an
increased number of workers with the existing plant and equipment.
Long Run Long run refers to that period of time in which
all inputs are variable.
Example- Installation of additional machine and
employing more workers.
What are Isoquants?
An isoquant is the locus of all the combinations of two factors of production that yield the
same level of output.
Isoquant Table showing combinations of Labour and Capital Producing 100 units of X
Processes Units of Labour
Units of Capital
1 1 102 2 73 3 54 4 45 6 36 9 2
Convex isoquant
4
2
L
7
4
2 4
K
Y
XO
Types of Isoquants
Linear Isoquant
Input- Output Isoquant
Linear Isoquant
A case of a perfect substitutability of production factors Isoquants shapes of a straight line sloping downwards
from left to right
O X
YY
Input- Output Isoquant
Here factors of production are not substitutes but their coefficients are fixed
Shape of it is right angled or ‘L’ shaped Also known as Leontief isoquant
X
Y
Isoquant Map Output varies as the factor input change. Nearer the point of origin lower the production. Complete set of isoquants for the producers
O X
Y
Isoquants nearer to the point of origin represent relatively lower level of production.
Assumptions:-
There are only two factors or inputs of production.
Divisible into small units.
Technical conditions.
Characteristics or Properties of Isoquants
Isoquants are negatively sloped.
A higher represents a larger output.
No two isoquants intersect or touch each other.
Isoquants are convex to the origin.
Isoquants are negatively sloped
Isoquants having positively sloped segments
A higher represents a larger output Two isoquants representing different output levels
No two isoquants intersect or touch each other
No two isoquants intersect one another
Isoquants are convex to the origin
Convexity of an isoquant
Isocosts Various combinations
of i/p that may be purchased for given amt of exp.
Isocosts is ratio of change of capital to labour.
Line close to origin indicates lower cost outlay.
Max o/p for a given cost AIM
Why Iso-quants & Iso-cost line ?
Position of the Producer.
Conditions for least cost comb.
Slope of IQ - MRTS
Slope of IC – Price factor
Minimisation of cost for given level of o/p AIM Position of the
Producer. Condition for
equilibrium same. MRTS = factor price
ratio
Limitations
Merely describes i/p substitution method but does’nt explain it.
Exp. may summarize but unable to explain shape or posn.
Limited to 2 or 3 i/p’s. Uninformative about new i/p’s.