Concept of Isoquant

An isoquant is a locus that shows various pairings of two elements, such labor and capital, that provide the same amount of output for the producer. It has a rectangular hyperbola shape with a downward slope to the right. The rule of diminishing marginal rate of substitution is at work, which is why. The words "Iso-Quant" are formed from the Greek word "Iso," which means "equal," and the Latin word "quant," which means "quantity." As a result, an isoquant reflects a constant output quantity at various combinations of inputs. Other names for the isoquant curve include "Production Indifference Curve," "Equal Product Curve," and "Iso-Product Curve."

Assumptions

The concept of the isoquant is based on following assumptions:

• Producer needs to be thoughtful
• Labor (L) and capital (K) are the only two inputs needed to generate a good.
• The declining marginal rate of substitution between two inputs is in operation.
• Since labor and capital are fully divisible and may be substituted in any small quantity, the production function is continuous.
• The producer has a preferred schedule for production.

Isoquant Map

A group of isoquants make up an isoquant map. In comparison to the lower isoquant, the higher isoquant produces a higher level of output. This is so that the higher isoquant contains can display the highest output possible from any given set of inputs.

Isoquants Vs Indifference Curves

Similarities exist between the characteristics of isoquants and those of difference curves. But there are a few subtle differences. Isoquants indicate different combinations of inputs, such as labor and capital, giving the same level of output, but the indifference curve methodology depicts alternative combinations of two products yielding the same degree of satisfaction. An isoquant represents a measurable quantity, while an indifference curve represents unquantifiable value (or contentment).

Properties of Isoquants

Higher iso-quant yields higher level of output than lower one

This is because more units of the production's inputs are used on the higher isoquant. The isoquant IQ1 and IQ2 are where the points A and B in the figure are located. At point A, we have OX1 units of labor and OY1 units of capital. At point B, we have OX2 units of labor and OY2 units of capital. In this case, the capital amount (OY1) is the same at both points A and B. However, there are X1X2 units of work more at point B. Consequently, it will produce a higher output.

Two isoquants cannot cut each other

Additionally, two isoquants cannot cut one another. We will get an inconsistent outcome and there will be a contradiction if they cross or cut each other. The isoquants IQ1 and IQ2 in the illustration represent 100 and 200 units of output, respectively, produced by different combinations of labor, capital, and the curve. There is inconsistency at point A. As a result, isoquants cannot intersect.

Isoquants are convex to the origin

Isoquant is always convex to the origin because of how the declining marginal rate of substitution operates. The rate at which a marginal unit of one input can be swapped for another input is known as the MRTS. However, the output level stays the same or constant.

No isoquant can touch either axis

Both work and capital must be used to generate the good. If an isoquant crosses the X-axis, it indicates that there is no such thing as a capital unit. As a result, the production process was halted. And if point K on IQ2 touches the Y-axis. This means that the output can be generated using K units of capital and 0 units of labor. As a result, this is not feasible because the manufacturer cannot produce using just one factor.

Isoquants are negatively sloped

From the right, an isoquant slopes downhill. The theory of diminishing marginal rate of technology substitution underlies this. A decrease in the usage of one input must be balanced out by an increase in the use of another input in order to maintain a particular output.

Reference

Koutosoyianis, A (1979), Modern Microeconomics, London Macmillan