ISOQUANTS

&
FIRMS EXPANSION PATH
 ISOQUANTS

The terms Iso-quant has been derived from

the Greek word iso means `equal` and Latin
word quantus means `quantity`.

Isoquants are a geometric representation of the

production function. The same level of output
can be produced by various combinations of
factor inputs. The locus of all possible
combinations is called the Isoquant.
 been derived from the Greek word iso means
`equal` and Latin word quantus means
`quantity`. The iso-quant curve is therefore
also known as`` equal product curve ``or
production indifference curve . An iso-
quant curve is locus of point representing
the various combination of two inputs capital
and labour yielding the same output.
 It shows all possible combination of two
inputs, namely- capital and labour which can
produce a particular quantity of output or
different combination of the two inputs that can
give in the same output . An isoquant curve all
along its length represents a fixed quantity of
output.
 ISOQUANTS Production function with two
variable inputs or equal product curves
According to Ferguson, An isoquant is a curve
showing all possible combinations of inputs
physically capable of producing a given level of
output
 An isoquant represents all those combinations of
inputs which are capable of producing the same
level of output
An isoquant is also known as Production-
Indifference curve
 The plotting of all these combinations can be seen in the above
graph, the locus of all the possible combinations of inputs forms an
isoquant.

Isoquants are also called as isoproduct curves (or)

production indifference curves. An isoquant curve shows various
combinations of two inputs factors w such as capital and labors,
which are capable of producing fixed (or) same level of output.
Thus an isoquant shows all such combinations which
yields equal quantity of output and producer can choose any
combination because all these combinations yield same output.
Assumptions :
1) Two factors can be substituted for each other
2) No change in technology.
Main Properties or Features of an Isoquant :

(1) Isoquant is a Negatively Sloped Curve (i.e.,

Downward Sloping) :

Isoquants are negatively slope curves because, if one

input increases, the other decreases. The two inputs
are inversely proportional to each other. Therefore
there is no question of increase in both the inputs to
yield a given output. Here, a degree of substitution is
assumed between these inputs.
(2) Do not Overlap :

No two isoquant (overlap) with each other,

because, each of these denote a specific level of
output with different combinations of inputs.
(3) Convex to Origin:
In isoquant, one input factor can be
substituted by other input factor in a diminishing
marginal rate. This means the input factors are
not perfect substitutes. As a result of this,
isoquants were bulged towards origin (becomes
convex to origin).
(4) Do not interest Axes:

The isoquants neither touch X-axis not Y-

axis, as some amount of both inputs are required
to produce a given output.
 CHARACTERISTICS OF ISOQUANT

An isoquant slopes downward to the right.

An isoquant is convex to origin.

An isoquant is smooth and continuous.

Two isoquants do not intersect

 TYPES OF ISOQUANTS
The production isoquant may assume various
shapes depending on the degree of substitutability
of factors.

LINEAR ISOQUANT
This type assumes perfect substitutability of
factors of production. A given commodity may be
produced by using only capital or only labor or by
an infinite combination of K and L.
 Cont.
INPUT-OUTPUT ISOQUANT
This assumes strict complementarily, that is zero
substitutability of the factors of production. There
is only one method of production for any one
commodity. The isoquant takes the shape of a
right angle. This type of isoquant is called
Leontief Isoquant.
 For example, exactly two wheels and
one frame are required to produce a bicycle and
in no way can wheels be substituted for frames
or vice-versa. Likewise. Two wheels and one
chassis are required for a scooter. This is also
known as Leontief Isoquant or Input-output
isoquant.
 Cont.
KINKED ISOQUANT

This assumes limited substitutability of K and L.

Generally, there are few processes for producing
any one commodity. Substitutability of factors is
possible only at the kinks. It is also called activity
analysis-isoquant or linear-programming
isoquant because it is basically used in linear
programming.
 Cont.
SMOOTH, CONVEX ISOQUANT

This form assumes continuous substitutability of

K and L only over a certain range, beyond which
factors cannot substitute each other. This
isoquant appears as a smooth curve convex to
the origin.
Significance of Isoquant Curve
It helps industries to slightly alter their inputs.
It illustrates various combinations of two factors
at prescribed cost and budget of the producer.
It helps industries to select the level of output
needed as per requirement using variable
factors- produce at a lower cost.
It helps in decision making process for the
industry so as to minimize losses.
EXPANSTION PATH
 Concepts:
In economics, an expansion path is a line
connecting optimal input combinations as the
scale of production expands.

A producer seeking to produce the most units

of a product in the cheapest possible way
attempts to increase production along the
expansion path.
 Economists Alfred Stonier and Douglas
Hague defined expansion path as, that line
which reflects least cost method of producing
different levels of output, when factors prices
remains constant.
 The Firms Expansion Path
The expansion path does not have to be
a straight line.

The expansion path does not have to be

upward sloping.
 Y
E
Firms Expansion Path
14
13
12
11 L Expansion Path
A
10
9
C
Capital (K)

8 J
7 I Optimal inputs combination
6
5 H 14Q
III
4
G M
3 K 12Q
2 II
10Q
1 I
D B F
X
0
2 4 6 8 10 12 14
Labour (L)
 In this case the firm is producing 1000 units
outputs with using 8 units of capital and 8
units of labour, with input price w = wages for
the labour, r= rate of capital.
 At the points of tangency between
isoquants and iso-cost lines, the slope of
isoquant (MRTS) is equal to the slope of
the iso-cost line. Where,
w = wage rate of labour
i.e. Slope of iso-cost line = -w/r r = rate of capital
Slope of isoquant (MRTS) = -MPL/MPK
Optimal inputs combination is:
MPL w
MPK r
we get:
MPL MPK
w r
TYPES OF EXPANSTION PATH
Long Run Expansion Path
Short Run Expansion Path
 Marginal Rate of Technical Substitution :

The slope of the isoquants has a technical

name called Marginal Rate of Technical
Substitution (MRTS).
 The rate at which one factor of
production (input) can be substituted for
other is known as marginal rate of
technical substitution. If we assumed two
factors of production say labors and
capital, then the marginal rate of technical
substitution of capital for labors is the
number of units of labors, which can be
replaced by one unit of capital, while the
quantity of output remaining the same.
 For example, we assumed in the above
table that an output of 10,000 units could
be obtained with either applying 1 unit of
capital and 15 units of labors or employing
2 units of capital and 10 units of labors.
This means, in the different combinations of
input capital can be substituted for labors
and yet we have the same output.
The Isocost Line

The isocost line is an important

component when analyzing producers
behavior. The isocost line illustrates all the
possible combinations of two factors that
can be used at given costs and for a given
producers budget. In simple words, an
isocost line represents a combination of
inputs which all cost the same amount.
Isocosts :
Isocost refers to that cost curve
which will show the various combinations
of two inputs, which can be purchased with
a given amount of total money.
OPTIMUM COMBINATION OF
INPUT
When producers use the optimal
combination of two factors ie, labour cost
and capital cost to earn maximum profit
then it is called optimum combination of
inputs.

Optimization of two Input

Optimization of single output
RIDGE LINES
Ridge lines may be defined as lines
separating the downward sloping portions
of a series of isoquants from the upward
sloping portions.

They give the boundary of the economic

region of production.
 Beyond the ridge lines there is no
economic relevance - Since the input are
not substitutable.
They indicates the limits of substitution.
The Cobb-Douglass Production
Function
The Cobb-Douglass production function
was introduced in 1928, and it is still a
common functional form in economic
studies today. It has been used extensively
to estimate both individual firm and
aggregate production functions. It has
undergone significant criticism but has
endured.
It is now customary practice in economics to
deny its validity and then to use it as an
excellent approximation. It is was originally
constructed for all of the manufacturing
output (Q) in the United States for the years
1899 to 1922. The two inputs used by the
authors were number or manual workers (L)
and fixed capital (K). The formula for the
production function, which was suggested by
Cob, was of the following form :
Q = AKaLb
 Q quantity output
K capital
L labor
And A, a, b are the parameters.
The exponents of the K and L (a, b) represents
respectively.
The output elasticity of L (E1) and capital (Ek)

Here Ek = Elasticity of Capital

And EK + EL = a+b = Returns to Scale
a+b = 1 i.e. constant returns
a+b > 1 i.e. increase sing returns to scale
a+b < 1 i.e. decreasing returns to scale
Example
The table given below can easily understand the
concept of isoquant.
Producer Equilibrium with the help of Isoquants.
Producer will try to reach that combination of inputs
where output is maximized at least cost thereby profits
will be maximize.

Combination Capital Labors Output

(units)
A 1 15 10,000
B 2 10 10,000
C 3 6 10,000
D 4 3 10,000
 The above table shows the different
combination of input factaors (i.e. capital
and labor) to produce an amount of
10,000 units. The combination of A shows
1 unit of capital and 15 units of labors to
produce 10,000 units. The combination of
A shows 1 unit of capital and 15 units of
labors to produce 10,000 units. Similarly,
B, C and D employs 2C + 10L, 3 + 6L and
4C + 3L respectively to produce the same
amount of output i.e. 10,000 units.
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