MANAGERIAL ECONOMICS

Production Function with Two

Variable Inputs
Biplab Sarkar
Department of Management Studies
MANAGERIAL ECONOMICS

Production Function with Two

Variable Inputs

Biplab Sarkar
Department of Management Studies
MANAGERIAL ECONOMICS
Production Function with Two Variable Inputs

• In this class, we examine the production function when

there are two variable inputs. This can be represented
graphically by isoquant.

• We define isoquant and discuss characteristics of

isoquant.
• Isoquant will then be used to develop the conditions for
the efficient combination of inputs in production.
MANAGERIAL ECONOMICS
Production Function with Two Variable Inputs

Capital (K) 6 10 24 31 36 40 39
5 12 28 36 40 42 40
4 12 28 36 40 40 36 Output (Q)
3 10 23 33 36 36 33
2 7 18 28 30 30 28
1 3 8 12 14 14 12
1 2 3 4 5 6
Labour (L)
MANAGERIAL ECONOMICS
Production Isoquant
MANAGERIAL ECONOMICS
Production Isoquant

An isoquant shows the various combinations of two inputs

(say, labour and capital) that the firm can use to produce a
specific level of output.

If the production function is Q = f(L,K), then the equation for

an isoquant is:

𝑄ത = 𝑓(𝐿, 𝐾)
MANAGERIAL ECONOMICS
Economic Region of Production: Ridge Lines
MANAGERIAL ECONOMICS
Economic Region of Production

• The economic region of production is given by the

negatively sloped segment of isoquants between ridge
lines OVI and OZI.
• The firm will not produce in the positively sloped portion
of the isoquants because it could produce the same level
of output with both less labour and less capital.
• Ridge line separate the relevant (i.e., negatively sloped)
from the irrelevant (or positively sloped) portions of the
isoquants.
• Ridge line join points on the various isoquants where the
isoquants have zero or infinite slope.
THANK YOU

Biplab Sarkar
Department of Management Studies
biplabsarkar@pes.edu
+91 80 6666 3333 Extn 337