Technological Progress and the Production Functions:

As knowledge of new and more efficient methods of production become available, technology
changes.

Furthermore new inventions may result in the increase of the efficiency of all methods of
production. At the same time some techniques may become inefficient and drop out from the
production function.

These changes in technology constitute technological progress.

Graphically the effect of innovation in processes is shown with an upward shift of the
production function (figure 3.27), or a downward movement of the production isoquant (figure
3.28). This shift shows that the same output may be produced by less factor inputs, or more
output may be obtained with the same inputs.
Technical progress may also change the
shape (as well as produce a shift) of the
isoquant. Hicks has distinguished three types
of technical progress, depending on its effect
on the rate of substitution of the factors of
production.

Capital-deepening technical progress:

Technical progress is capital-deepening (or capital-using) if, along a line

on which the K/L ratio is constant, the MRSL K increases. This implies that
technical progress increases the marginal product of capital by more than
the marginal product of labour. The ratio of marginal products (which is
the MRSL K) decreases in absolute value; but taking into account that the
slope of the isoquant is negative, this sort of technical progress increases
the MRSL K. The slope of the shifting isoquant becomes less steep along
any given radius. The capital-deepening technical progress is shown in figure 3.29.
Labour-deepening technical progress:

Technical progress is labour-deepening if, along a radius through

the origin (with constant K/L ratio), the MRSL, K increases. This
implies that the technical progress increases the MPL faster than
the MPK. Thus the MRSL ,K, being the ratio of the marginal
products [(∂X/∂L)]/[(∂X/∂K)], increases in absolute value (but
decreases if the minus sign is taken into account). The
downwards-shifting isoquant becomes steeper along any given
radius through the origin. This is shown in figure 3.30.

Neutral-technical progress:

Technical progress is neutral if it increases the marginal product of

both factors by the same percentage, so that the MRSL K (along any
radius) remains constant. The isoquant shifts downwards parallel to
itself. This is shown in figure 3.31.