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Isoquant Curve
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 quantity.
Therefore, these words together refer to equal quantity or equal product.
An isoquant curve is
the representation of a set of locus of different combinations of two inputs
(labor and capital) which yield the same level of output. It is also known as
or equal product curve or producer’s indifference curve.
It is a firm’s
counterpart of the consumer’s indifference curve. Thus, an isoquant may also be
defined as the graphical representation of different combinations of two inputs
which give same level of output to the producer. Since all the combinations
lying in an isoquant curve yield the same level of production, a producer is
indifferent between the combinations.
Example of Isoquant Schedule and Isoquant Curve
|
Table 1: isoquant schedule |
|||
|
Combinations |
Labor (L) |
Capital
(K) |
Output
(units) |
|
A |
1 |
12 |
100 |
|
B |
2 |
8 |
100 |
|
C |
3 |
5 |
100 |
|
D |
4 |
3 |
100 |
|
E |
5 |
2 |
100 |
The given
isoquant schedule represents various combinations of inputs (labor and
capital).
From the table, we can see combination A consists of 1 unit of labor and 12 units of capital which together produce 100 units of output. In combination B, when 1 unit of labor was added in place of 4 units of capital, the production process still produced 100 units of output. In the same way, other combinations C (3L + 5K), D (4L + 3K) and E (5L + 2K) made the same level of output, i.e. 100 units.
Assumptions of Isoquant
Curve
The concept of isoquant is based on the following assumptions.
1. Only
two inputs (labor and capital) are employed to produce a good.
2. There
is technical possibility of substituting one input for another. It implies that
the production function is of variable proportion type.
3. Labor
and capital are divisible.
4. The
producer must be rational, i.e. trying to maximize his profit.
5. State
of technology is given and unchanged.
6. Marginal
rate of technical substitution diminishes in production process.
Properties of Isoquant Curve
The
isoquant curve has almost the same properties as are possessed by the
indifference curve of the theory of consumer behavior. They are explained
below.
1. Isoquant is convex to the
origin
The
isoquant is convex to the origin because the marginal rate of technical
substitution (MRTS) between the inputs is diminishing. As shown in the tabular
example of MRTS, the ratio by which the input units of capital is substituted
by labor units diminishes with more and more substitution of labor for capital.
Thus, the isoquant curve is convex to the origin.
If
the isoquant curve had been concave to the origin, it would imply that the MRTS
increases as more and more of labor is substituted for capital. And this would
be against the assumption that the isoquant curve is based on.
2. Isoquant is negatively
sloped
The isoquant curve is neither upward sloping nor horizontal but
always slopes downward from left to right. It is because the producer will have
to give up some of the input units of capital to increase the input of labor
when keeping the production amount unchanged.
Increasing
input units of either of the factors without deducing the input of the other
factor will result in increased production and it is beyond the principle of
isoquant curve.
In the figure, when OK1 units of capital were
employed, OL1 units of labor were employed too. When the input
units of labor was increased to OL2, the input units of capital was
reduced to OK2.
Therefore,
the curve is downward sloping from to right. And slope of any downward sloping
curve is always negative.
3. Higher isoquant represents
higher production
The
isoquant which is in higher stage has higher units of labor and capital
combinations. Greater combination of labor and capital makes large scale of
production. So, higher the isoquant curve, greater will be the production
level.
In the figure, we can see that there are two isoquant curves (Iq1 and
Iq2). We can also see that the combination A lies on Iq1 and
combination B lies on Iq2.
Combination A consists of OL1 units of labor and
OK1 units of capital which is visibly lesser than the OL2 units
of labor and OK2 units of capital at point B. So we can say
that production level at Iq2 is higher than the production
level at Iq1.
4. Two isoquants never
intersect each other
Each
isoquant curve is a representation of particular level of production. The level
of production or output of a production process is same throughout the curve.
In the above figure, Iq1 and Iq2 are
two isoquant curves and R is the point where both the curves intersect.
According
to the principle of isoquant curve, production level at point S = production
level at point R = production level at point T
Also,
production level at point P = production level at point R = production level at
point Q
But,
production level at point S and point T ≠ production level at point P and point
Q
Therefore,
two isoquant curves cannot intersect. Yet, two isoquant curves need not be
parallel to each other.
The
parallelism of isoquant curves depend upon the MRTS. The isoquant curves can be
parallel only when the MRTS of both the curves are equal.
Adopted from: https://www.businesstopia.net/economics/micro/isoquants-meaning-assumptions-and-properties
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