ISOQUANTS

UNIT - 2
ISOQUANT CURVE- INTRODUCTION

• The term "isoquant," broken down in Latin, means “equal quantity,” with
“iso” meaning equal and “quant” meaning quantity. Essentially, the curve
T

represents a consistent amount of output. The isoquant is known,

alternatively, as an equal product curve or a production indifference curve. It
may also be called an iso-product curve.
• Most typically, an isoquant shows combinations of capital and labor, and the
technological tradeoff between the two—how much capital would be
required to replace a unit of labor at a certain production point to
generate the same output. Labor is often placed along the X-axis of the
isoquant graph, and capital along the Y-axis.
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PRESENTATION TITLE

ISOQUANT CURVE
 EXPLANATION OF THE GRAPH
PRESENTATION TITLE

• The exact slope of the isoquant curve on the graph shows the rate at which a
given input, either labor or capital, can be substituted for the other while
keeping the same output level.
• For example, in the graph below, Factor K represents capital, and Factor L
stands for labor. The curve shows that when a firm moves down from point
(a) to point (b) and it uses one additional unit of labor, the firm can give up
four units of capital (K) and yet remain on the same isoquant at point (b). If
the firm hires another unit of labor and moves from point (b) to (c), the firm
can reduce its use of capital (K) by three units but remain on the same
isoquant

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 WHAT IS AN ISOQUANT IN
PRESENTATION TITLE

ECONOMICS?
• An isoquant in economics is a curve that, when plotted on
a graph, shows all the combinations of two factors that
produce a given output.

• Often used in manufacturing, with capital and labor as

the two factors, isoquants can show the optimal
combination of inputs that will produce the maximum
output at minimum cost.
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 ISOQUANT CURVE
PRESENTATION TITLE

• An isoquant curve is a concave-shaped line on a graph, used in

the study of microeconomics, that charts all the factors, or
inputs, that produce a specified level of output.
• This graph is used as a metric for the influence that the inputs—
most commonly, capital and labor—have on the obtainable level of
output or production.
• The isoquant curve assists companies and businesses in making
adjustments to inputs to maximize production, and thus profits.
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PRESENTATION TITLE
MEANING
•
An isoquant curve is a concave line plotted on a graph, showing all of the
various combinations of two inputs that result in the same amount of
output.
• Most typically, an isoquant shows combinations of capital and labor and the
technological trade-off between the two.
• The isoquant curve assists companies and businesses in making adjustments
to their manufacturing operations, to produce the most goods at the most
minimal cost.
• The isoquant curve demonstrates the principle of the marginal rate of
technical substitution, which shows the rate at which you can substitute one
input for another, without changing the level of resulting output.
• Isoquant curves cannot be tangent or intersect one another, they tend to
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slope downward, and ones representing higher output are placed higher and
to the right.
 PROPERTIES-ISOQUANT
PRESENTATION TITLE

• An isoquant is a concave-shaped curve on a graph that

measures output, and the trade-off between two factors needed
to keep that output constant. Among the properties of
isoquants:
• An isoquant slopes downward from left to right
• The higher and more to the right an isoquant is on a graph, the
higher the level of output it represents
• Two isoquants can not intersect each other
• An isoquant is convex to its origin point
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• An isoquant is oval-shaped
THE PROPERTIES OF AN ISOQUANT
PRESENTATION TITLE

CURVE
• Property 1: An isoquant curve slopes downward, or is negatively sloped.
• This means that the same level of production only occurs when increasing
units of input are offset with lesser units of another input factor. This
property falls in line with the principle of the
Marginal Rate of Technical Substitution (MRTS). As an example, the same
level of output could be achieved by a company when capital inputs
increase, but labor inputs decrease.
• Property 2: An isoquant curve, because of the MRTS effect, is convex to
its origin.
• This indicates that factors of production may be substituted with one
another. The increase in one factor, however, must still be used in
conjunction with the decrease of another input factor.
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 ………
PRESENTATION TITLE

• Property 3: Isoquant curves cannot be tangent or intersect one

another.
• Curves that intersect are incorrect and produce results that are
invalid, as a common factor combination on each of the curves
will reveal the same level of output, which is not possible.
• Property 4: Isoquant curves in the upper portions of the chart
yield higher outputs.
• This is because, at a higher curve, factors of production are more
heavily employed. Either more capital or more labor input
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factors result in a greater level of production.
 ……..
PRESENTATION TITLE

• Property 5: An isoquant curve should not touch the X or Y axis on

the graph.
• If it does, the rate of technical substitution is void, as it will indicate
that one factor is responsible for producing the given level of output
without the involvement of any other input factors.
• Property 6: Isoquant curves do not have to be parallel to one
another.
• The rate of technical substitution between factors may have
variations.
•1 1 Property 7: Isoquant curves are oval-shaped.
• This allows firms to determine the most efficient factors of
PRESENTATION TITLE WHAT IS ISOQUANT AND ISO
COST?
• Both ISO costs and isoquants are curves plotted on a
graph.
• Used by producers and manufacturers, they display the
best interplay of two factors that will result in the
maximum output at minimum cost.
• An isoquant shows all combinations of factors that
produce a certain output.
• An ISO cost show all combinations of factors that cost the
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same amount.
PRESENTATION TITLE ISO COST LINES
• Iso cost lines represent combinations of two factors that can be bought with
different outlays. In other words, it shows how we can spend money on two
different factors to produce maximum output. These lines are also called
budget lines or budget constraint lines.
• E.g. Let’s assume that a farmer has Rs. 1,000 to spend on labor costs and
ploughs for farming. The cost of one such plough and wage per labour is Rs.
100. Considering his total outlay of Rs. 1,000, he can spend that money in
the following combinations:
• The farmer, in this case, can either spend the entire sum of Rs. 1,000 on just
ploughs by buying 10 of them. Similarly, he can also spend it all on labor by
employing 10 labors. He can even purchase both, labor and ploughs using
different combinations as shown above. The total outlay of Rs. 1,000 will
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remain the same. Hence, the iso cost line will remain straight as shown
below:
 CALCULATING ISOQUANTS
PRESENTATION TITLE

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PRESENTATION TITLE

• When labour is increased typically by one unit.

•
For example, in the graph of an isoquant where capital
(represented with K on its Y-axis and labor (represented
with L) on its X-axis, the slope of the isoquant, or the
MRTS at any one point, is calculated as .

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 PRODUCERS EQUILIBRIUM
PRESENTATION TITLE

• Economic production is the result of the output we produce

by employing factors like land, labour, capital, and
entrepreneurship. It is possible to determine the optimum
amount of production possible considering different
combinations of these inputs. Such a determination is
called the producer’s equilibrium.

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 PRODUCERS EQUILIBRIUM
PRESENTATION TITLE

• The value of all assets used for production is limited. Hence, the producer has
to use such a combination of inputs as would provide him with maximum
output and profits. This optimum level of production, also called producer’s
equilibrium, is achieved when maximum output is derived from minimum
costs.
• In order to achieve this, producers first have to classify their resources into
different combinations. Each combination would provide production in
different quantities. The combination that provides the highest amount of
produce at the least amount of costs is the optimum level of production.
• In order to find out producer’s equilibrium, we first need to understand
isoquant curves and iso-cost lines. These two concepts help us calculate
optimum production.
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PRESENTATION TITLE

• These lines represent various input combinations which produce the same
levels of output. The producer can choose any of these combinations available
to him because their outputs are always the same. Thus, we can also call them
equal–product curves or production indifference curves.
• Just like indifference curves, isoquants are also negatively-sloping and convex
in shape. They never intersect with each other. When there are more curves
than one, the curve on the right represents greater output and curves on the
left show less output.

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 ISOQUANT CURVE
PRESENTATION TITLE

IT SHOWS FOUR P L O T T I N G T H E S E N U MB E R S W E
C O MBI N ATI O N S , I . E . A , B , C G E T T H E C U RV E
A N D D , W H I CH P R O D U C E
VA RY I N G L EV EL S O F O U T P U T

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PRESENTATION TITLE

• The X-axis shows units of labour, while the Y-axis represents units of capital.
Points A, B, C and D are combinations of factors on which IQ is the level of
output, i.e. 100 units. IQ1 and IQ2 represent greater potential output.

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PRESENTATION TITLE PRODUCERS EQUILIBRIUM
• Isoquant curves, as we learned above, show us input
combinations that we can employ to produce certain levels of
output. Furthermore, iso cost lines help us determine
combinations of two factors in which we can invest our outlays to
produce output. A combination of these two graphs is what gives
us the optimum production level, i.e. the producer’s equilibrium.
• Using this equilibrium, the producer can determine different
combinations to increase output. He can also use this information
to find ways to cut costs using the same inputs and consequently
generate more profit. We can find out the least expensive
21 combinations of factors by superimposing isoquant curves on
isoquant lines.
 PRESENTATION TITLE
PRODUCERS EQUILIBRIUM
• In the figure, the isoquant curve represents targeted output, i.e.
200 units. Iso cost lines EF, GH and KP show three different
combinations in which we can utilize the total outlay of inputs,
i.e. capital and labor.
• The isoquant curve crosses all three iso cost lines on points R,
M and T. These points show how much costs we will incur in
producing 200 units. All three combinations produce the same
output of 200 units, but the least costly for the producer will be
point M, where iso cost line GH is tangent to the isoquant
curve.
• Points R and T also cross the isoquant curve and equally
produce 200 units, but they will be more expensive because
they are on the higher iso cost line of KP. At point R the
producer will spend more on capital, and labor will be more
expensive on point T.
• Thus, point M is the producer’s equilibrium. It will produce
the
2 2 same output of 200 units, but will a more profitable

combination as it will cost less. The producer must, therefore,

spend OC amount on capital and OL amount on labor.