Economic assignment 2 individual

Question 1

Explain the concept of Isoquant. What are the properties of Isoquant?

Ans:
In microeconomics, is a contour line drawn through the set of points at which the same
quantity of output is produced while changing the quantities of two or more inputs. The x and
y axis on an isoquant represent two relevant inputs, which are usually a factor of production
such as labour, capital, land, or organisation. An isoquant may also be known as an
“Iso-Product Curve”, or an “Equal Product Curve”.

The properties of Isoquants,

1.) The isoquant curve is negatively sloped, which means, in order to have a same level of
production, the more use of units of one input factor is to be offset with the lesser units of
another input factor. This complies with the principle of Marginal Rate of Technical
Substitution (MRTP). For example, with more units of capital, the lesser units of labor are to
be employed to have a same level of output.

2.) The isoquant curve is convex to the origin because of the MRTP effect. This shows that
factors of production are substitutable for each other and with the increase in one factor the
other has to be reduced to have the same level of production.

3.) Iso-quant curves cannot intersect or be tangent to each other. If these intersects, then
the results will be incorrect. A common factor combination on both the curves will show the
same level of output, which is not feasible.

4.) Upper isoquant curves yield higher outputs. This is possible because, at a higher curve,
more factors of production are employed either the capital or the labor, which results in more
production.

5.) No iso-quant curve touches either of the axis, X or Y. If it does so, then the rate of
technical substitution would be void since it will show that a single factor is producing the
given level of output without any units of other factor being employed.

6.) Isoquant curves need not be parallel to each other because the rate of technical
substitution between the factors may vary in all the iso-quant curves.

7.) Each isoquant curve is oval shaped, which enables a firm to identify the most efficient
factor of production.

Question 2

Discuss the Law of variable proportion.

Ans:
The law of variable proportions states that as the Quantity of one factor is increased,
keeping the other Factors fixed, the marginal product of that factor will Eventually decline.
This means that up to the use of A certain amount of variable factor, marginal Product of the
factor may increase and after a Certain stage it starts diminishing. When the Variable factor
becomes relatively abundant, the Marginal product may become negative.

The law of variable proportion works under the following situations,

● Constant State of Technology
● Other Factors also remain fixed
● Possibility of Varying the Proportions of Factors

Question 3

Given TFC as Rs 145, calculate TC, ATC, AVC, AFC and MC from the information given
below.

Units 1 2 3 4 5 6

TVC 30 55 75 105 155 225