Isoquant and Isocost

Isoquant and Isocost:


Characteristics of Isoquant Curves:

a) Isoquant have a negative slope :

An isoquant has a negative slope in the economic region or in the relevant range. The negative slope of the isoquant implies substitutability between the inputs. It means if one of the inputs is reduced, the other input has to be increased such that the total output remains unaffected.

b) Isoquant are convex to the origin :- Convexity of isoquant implies to :

i.         substitution between the inputs

ii.         diminishing marginal rate of technical substitution (MRTS) between the inputs in economic region .

The MRTS defined as :-

MRTS = -∆K / ∆K = slope of the isoquant
i.e.. MRTS is the rate at which a marginal unit of labor can substitute a marginal unit of capital ( moving downward on the isoquant ) without actually affecting the total output .

This rate is indicated by the slope of the isoquant . The MRTS decreases for two reasons :-

  1. No factor is perfect substitute for another and Inputs are subject to diminishing marginal return .
  2. Therefore more and more units of an input are needed to replace each successive unit of the output .

c) Isoquant cannot intersect or be tangent to each other :

The intersection or tangency between any two isoquant implies that a given quantity of a commodity can be produced with smaller as well as larger input-combination. This is untenable as long as marginal productivity of inputs is greater than zero.

d) Upper isoquant represent higher level of output :

Between any two isoquant , the upper one represents a higher level of output then the lower one. The reasons an upper isoquant implies a larger input combination , which in general , produces a larger output. Therefore, upper isoquant indicate a higher level of output.



Click think link below to access notes on Isoquants and The Law of Diminishing Marginal Rate of Technical Substitution:

The Marginal Rate of Technical Substitution  (Page 146/275)



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