ISOQUANT —MEANING, ASSUMPTIONS, SLOPE, PROPERTIES AND ISOQUANT MAP

An isoquant shows the level of capital ( and Labour (L) that can produce a given level of output.

Isoquant capture the trade-off between a combination of inputs that yield the same output in the long run, when all inputs are variable.

The term "isoquant" is made up of two words: iso, which means equal, and quant, which means quantity. Hence, an isoquant is the combination of inputs that will yield equal outputs.

An isoquant shows the various combination of inputs that can produce the same amount of output.

It is the locus of points showing all the technically efficient ways of combining factors of production to achieve a fixed level of output.

Other names for isoquant are equal product curve, production indifference curve, or isoquant.

An isoquant is also called the production indifference curve because it is the producer equivalent of the consumer's indifference curve. So, while isoquant depicts the combination of two inputs that would result in the same level of output for the producer, the indifference curve depicts the combination of two goods that will result in the same level of utility for the consumer.

Assumptions Of Isoquants

1.  Two inputs: Isoquants assumes that only two inputs, capital and labour, are used.

2. Constant technology: Technology refers to anything that allows a company to produce more quickly and efficiently.

Technology relates to the state of techniques. For isoquant, we hold that technology is known and constant.

3. Divisible inputs: We also assume that factors of production can be broken down into smaller parts.

4. Efficient combination: To prepare isoquant, we assume factors of production can be used most efficiently.

That is, every combination of inputs can produce the maximum outputs possible.

5. Possibility of technical substitution: Input substitution should be technically possible.

This means that the isoquant should be obtained from a variable proportion type production function rather than a fixed proportion type production function.

This degree of technical substitution determines the shape of an isoquant curve.

6. Rational producer: Isoquant assumes that the producer is attempting to maximize profit while minimizing cost.

The slope of isoquant: Marginal rate of technical substitution

In addition to isoquants, economists are also interested in the slope of the isoquant.

The slope of an isoquant is called the marginal rate of technical substitution because it represents the rate at which a producer can substitute inputs while maintaining the same level of output.

Simply put, the marginal rate of technical substitution is the rate at which capital (K) can be substituted for labour (L), or labour (L) can be substituted for capital (K).

That is, it shows the amount of Capital that can be reduced, holding output constant while using one more unit of Labour

Alternatively, It shows the amount of labour that can be reduced, holding output constant while using one more unit of capital.

The marginal rate of substitution can be calculated thus:

$MRTS=\frac{MP_L}{MP_K}$

Properties Of Isoquants

1. Isoquant is downward-sloping: Isoquant, like indifference curves, are downward sloping, indicating that a producer will require less of one input, say Capital, and more of another input, say Labour, to produce the same level of output.

This is known as the marginal rate of technical substitution.

2. The slope of isoquant: The slope of the isoquant is called the marginal rate of technical substitution because it shows the rate at which one input is substituted for another.

The slope of the isoquant is equal to the ratio of marginal product of labor to marginal product of capital, as earlier illustrated in the MRTS formula .

3. Input flexibilities: Isoquants emphasize inputs flexibility by showing the various combinations of inputs that will produce the same level of output.

4. Isoquants are convex to the origin: The isoquants become flattered as we move to the right due to the law of diminishing marginal rate of technical substitution, indicating that the slope of the isoquant is becoming smaller as we move to the right.

5. Isoquants cannot cross: No two isoquants cannot cross or intersect.

If two isoquant intersects, each will have a different level of outputs, which run contradicts the basic premise of isoquant.

Keep in mind that an isoquant curve depicts the combination of inputs that will result in the same level of output, not a different level of output.

6. Shape of isoquants: If the two inputs are perfect substitutes, the isoquant will have the shape of a straight line, indicating that the marginal rate of technical substitution is constant.

That is, the input can be replaced with the other at the same rate.

Isoquant curve for perfect substitutes

The shape of the isoquant will be L-shaped if the two inputs are perfect complements, indicating that the firm is producing under a fixed proportion technology, as the firm cannot substitute one input with another and still maintain the same level of output.

Leontief productions functions have fixed proportions, and therefore, have an L-shaped isoquant to indicate that the inputs are perfect complements.

Isoquant curve for perfect complements

When the inputs are neither perfect substitutes nor perfect complements, the isoquant will be convex to the origin, as previously stated. Figure C illustrates this

7. Higher isoquant curve is preferred: A higher isoquant curve represent more output than a lower isoquant.

This is shown in figure C, where isoquant curve C has a larger output of 90 than isoquant curve B, which has a lower output of 75.

Hence, any point on a higher isoquant curve is preferred to any point on a lower isoquant 

Isoquant map

A collection of isoquants is called an isoquant map

More appropriately, an isoquant map is a set of isoquants curves that shows the technical efficient combination of inputs that can produce different levels of output.

In other words, an isoquant map depicts a family of isoquants, each of which represents a different amount of output.

The isoquant schedule is a table that contains information on the isoquant map/curve. 

It is a tabular representation of the information on an isoquant curve/isoquant map

Isoquant schedule

If we express this on an isoquant map, it will look like this:

Isoquant map

As can be seen, isoquant A depicts the combination of capital and labor that will result in 55 outputs

Isoquant B depicts the combination of capital and labor that will result in 75 outputs

isoquant C depicts the combination of capital and labor that will result in 95 outputs

As can be seen, Isoquant C produces a higher level of output than isoquant A. 

As a result, we can deduce that a higher isoquant is preferable to a lower isoquant because the former represents a higher level of production than the latter.

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