Professional Documents
Culture Documents
Isoquantsanditsproperties
Isoquantsanditsproperties
Isoquantsanditsproperties
Contents: Production & Production function. Isoquants. Types of isoquants. Properties of isoquants. Isocosts & equilibrium of producers.
Production
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. ExampleBuildings, 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. ExampleRaw 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. ExampleUsing 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. ExampleInstallation of additional machine and employing more workers.
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 1 2 3 4 5 6
Units of Labour 1 2 3 4 6 9
Units of Capital 10 7 5 4 3 2
Convex isoquant
K 7
2 X O Y 2 4 L
Types of Isoquants
Linear Isoquant
Y Y
A case of a perfect substitutability of production factors Isoquants shapes of a straight line sloping downwards from left to right
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
Isoquant Map
Output varies as the factor input change. Nearer the point of origin lower the production. Complete set of isoquants for the producers
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.
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.
AIM
AIM Position of the Producer. Condition for equilibrium same. MRTS = factor price ratio
Limitations
Merely describes i/p substitution method but doesnt explain it. Exp. may summarize but unable to explain shape or posn. Limited to 2 or 3 i/ps. Uninformative about new i/ps.