Isoquants and its properties
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Transcript of Isoquants and its properties
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Group membersPankaj Singh
Aatif AhmedMujahid Sayed
Wahid KhanSamina Mirkar
Ramakrishnan Iyer
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Isoquants and its Properties.
Contents:- Production & Production function. Isoquants. Types of isoquants. Properties of isoquants. Isocosts & equilibrium of producers.
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Production
What is production?
according to production manager
according to economist
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Production Function
The relationship between the inputs to the production process and the resulting output is described by a production function.
P(A)= f(L,K)
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Fixed Inputs A Fixed input is defined as one whose
quantity cannot be changed instantaneously in response to changes in market conditions requiring an immediate change in output.
Example- Buildings, major capital equipment and
managerial personnel.
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Variable Inputs Variable input is one whose quantity can be
changed readily when market conditions suggest that an immediate change in output is beneficial to the producer.
Example- Raw materials and labour services.
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Short Run Short run is defined as that period of time in
which quantity of one or more inputs remains fixed irrespective of the volume of output.
Example- Using more of raw material and employing an
increased number of workers with the existing plant and equipment.
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Long Run Long run refers to that period of time in which
all inputs are variable.
Example- Installation of additional machine and
employing more workers.
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What are Isoquants?
An isoquant is the locus of all the combinations of two factors of production that yield the
same level of output.
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Isoquant Table showing combinations of Labour and Capital Producing 100 units of X
Processes Units of Labour
Units of Capital
1 1 102 2 73 3 54 4 45 6 36 9 2
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Convex isoquant
4
2
L
7
4
2 4
K
Y
XO
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Types of Isoquants
Linear Isoquant
Input- Output Isoquant
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Linear Isoquant
A case of a perfect substitutability of production factors Isoquants shapes of a straight line sloping downwards
from left to right
O X
YY
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Input- Output Isoquant
Here factors of production are not substitutes but their coefficients are fixed
Shape of it is right angled or ‘L’ shaped Also known as Leontief isoquant
X
Y
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Isoquant Map Output varies as the factor input change. Nearer the point of origin lower the production. Complete set of isoquants for the producers
O X
Y
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Isoquants nearer to the point of origin represent relatively lower level of production.
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Assumptions:-
There are only two factors or inputs of production.
Divisible into small units.
Technical conditions.
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Characteristics or Properties of Isoquants
Isoquants are negatively sloped.
A higher represents a larger output.
No two isoquants intersect or touch each other.
Isoquants are convex to the origin.
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Isoquants are negatively sloped
Isoquants having positively sloped segments
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A higher represents a larger output Two isoquants representing different output levels
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No two isoquants intersect or touch each other
No two isoquants intersect one another
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Isoquants are convex to the origin
Convexity of an isoquant
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Isocosts Various combinations
of i/p that may be purchased for given amt of exp.
Isocosts is ratio of change of capital to labour.
Line close to origin indicates lower cost outlay.
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Max o/p for a given cost AIM
Why Iso-quants & Iso-cost line ?
Position of the Producer.
Conditions for least cost comb.
Slope of IQ - MRTS
Slope of IC – Price factor
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Minimisation of cost for given level of o/p AIM Position of the
Producer. Condition for
equilibrium same. MRTS = factor price
ratio
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Limitations
Merely describes i/p substitution method but does’nt explain it.
Exp. may summarize but unable to explain shape or posn.
Limited to 2 or 3 i/p’s. Uninformative about new i/p’s.
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