Iso-Quant Curve: Definitions, Assumptions and Properties! The term Iso-quant or Iso-product is composed of two words, Iso = equal, quant = quantity or product. The term ‘isoquant’ is composed of two terms ‘iso’ and ‘quant’. Iso is a Greek word which means equal and quant is a Latin word which means. Property 2: An isoquant curve, because of the MRTS effect, is convex to its origin. This indicates that factors of production may be substituted.
|Published (Last):||14 December 2006|
|PDF File Size:||13.79 Mb|
|ePub File Size:||9.9 Mb|
|Price:||Free* [*Free Regsitration Required]|
In order to understand this fact, we have to understand the concept of diminishing marginal rate of technical substitution MRTSbecause convexity of an isoquant implies that the MRTS diminishes along the isoquant. The isoquant curve is neither upward sloping nor horizontal but prooerties slopes downward from left to right. We can also see that the combination A lies on Iq 1 and combination B lies on Iq 2.
Each iso-cost curve represents the different combinations of two inputs that a firm can buy for a given sum of money at the given price of osoquant input. Nice information about the topic Thanks sir. The MRTS diminishes because the two factors are not perfect substitutes.
Let us suppose that EF is 20 units of labour and FG is 10 units of labour. It can be explained with the help of an example. A given quantity of output may be produced with different combinations of factors. This is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. The dotted segments properrties an isoquant are the waste- bearing segments. In short, both the concepts of returns to scale and returns to a factor change in factor proportions can be explained by using the technique of Isoquants.
Hence, the isoquant cannot be a horizontal straight line like AB.
Iso-Quant Curve: Definitions, Assumptions and Properties
Therefore as seen in figure 9, IQ and IQ 1 cannot be isoquants. Indifference curve provides no information regarding the economic and uneconomic region of consumption. ComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers.
Thus, the marginal rate of technical substitution diminishes as labour is substituted for capital. Isoquants are convex to the origin An propertiws must always be convex to the origin. Ridge lines join those points on different iso-quant curves which determine the economic limits of production. If they are concave, MRTS of labor for capital increases. Like indifference curves, isoquants are convex to the origin. Each indifference curve represents particular level of satisfaction which cannot be quantified.
Since the rate of substitution between two factors need not necessarily be the same in all the isoquant schedules, they need not be parallel. It refers to those different combinations of two factors that a firm can obtain at the same cost.
It is shown in figure It means that at some point it begins to recede from each axis. This shape is a consequence of the fact that if a producer uses more of capital isoquznt more of labour or more of both than is necessary, the total product will eventually decline.
Google provides ad serving technology and runs an ad network. If an isoquant touches X-axis, it would mean that the product is being produced with the help of labour alone without using capital at all.
Isoquants: Meaning, Assumptions and Properties
Slope of an iso-quant curve is influenced by the technical isoquantt of substitution between factors of production. These logical absurdities for OL units of labour alone are unable to produce anything. Each isoquant is oval-shaped An important feature of an isoquant is that it enables the firm to identify the efficient range of production consider figure In other words the rays show the returns to scale which implies that to increase output both the inputs should be increased in the same proportion.
They form the uneconomic regions of production. It is called output path. In the third combination, the loss of 2 units of capital is compensated for by 5 more units of labour, and so on. In other words, the marginal rate of technical substitution of labour for capital is the slope or gradient of the isoquant at a point. Like the price-income line in the indifference curve analysis, a relative cheapening of one of the factors to that of another will extend the iso-cost line to the right.
A rational producer will chose this combination of factors, given the factor prices. Therefore, it will yield a higher output. Figure 8 propertied that when the producer moves from point A to B, the amount of labor increases from OL to OL 1but the units of capital decreases from OK to OK 1to maintain the same level of output.
When capital is taken constant at OR and production is expanded by adding more labour, the distance between successive Isoquants becomes increasingly greater, that is even more and more labour is needed for every additional units of output.
We may note that the isoquants Iq 1 and Iq 2 are parallel but the isoquants Iq 3 and Iq4 are not parallel to each other. CD touches IQ 1 at point E 1 which isoquajt constitute the new equilibrium point.
As financial resources of a firm increase, it would like to increase its output. Thus, an isoquant schedule is proeprties schedule of different combinations of factors of production yielding the same quantity of output.
This is really well explained and extremely simple to understand.
Iso-Quant Curve: Definitions, Assumptions and Properties
This means that units increase in output can be obtained by employing successively lesser increments of labour. Therefore, only the negatively sloped segment of isoquant is economically feasible. Meaning, Assumptions and Properties.