THEORY OF PRODUCTION ISO QUANT CURVE APPROACH

•     THEORY OF PRODUCTION ISO QUANT CURVE APPROACH
MICRO/BUSINESS ECONOMICS

•     DR. SHASHI AGGARWAL

•     MEANING

•     ISOQUANT/ISO PRODUCT IS A COMBINATION OF TWO WORDS ISO MEANS EQUAL AND QUANT MEANS QUANTITY. EQUAL QUANTITY OR EQUAL PRODUCT. IT MEANS EQUAL QUANTITY OR EQUAL PRODUCT

•     AN ISO QUANT CURVE IS A WHICH REPRESENTS DIFFERENT COMBINATIONS OF TWO FACTORS WHICH YIELD SAME LEVEL OF OUTPUT.

•     ALSO KNOWN AS EQUAL PRODUCT CURVE OR ISO PRODUCT CURVE OR PRODUCTION INDIFFERENCE CURVE OR CONSTANT PRODUCT CURVE

•     DEFINITION

•     PROF BILAS” ISO PRODUCT CURVE SHOWS THE DIFFERENT COMBINATIONS OF TWO RESOURCES WITH WHICH A FIRM CAN PRODUCE EQUAL AMOUNT OF PRODUCT.

•     PETERSON ,” AN ISO QUANT CURVE MAY BE DEFINED AS A CURVE SHOWING THE POSSIBLE COMBINATIONS OF TWO VARIABLE INPUTS FACTORS THAT CAN BE USED TO PRODUCE THE SAME TOTAL OUTPUT.

•     ASSUMPTIONS

1.       TWO FACTORS OF PRODUCTION: LABOR AND CAPITAL

2.       SUBSTITUITABILITY: A GIVEN AMOUNT OF COMMODITY CAN BE PRODUCED WITH MORE OF CAPITAL AND LESS OF LABOUR AND VICE VERSA. CAPITAL CAN BE USED IN PLACE OF LABOUR OR LABOUR CAN BE USED AT LEAST OVER A CERTAIN RANGE.

3.       CONSTANT PRODUCTION OF TECHNIQUE

4.       FACTORS CAN BE DIVIDED INTO SMALLER UNITS

•     EXPLANATION

•     EXPLANATION

•     100 UNITS OF X COMMODITY CAN BE PRODUCED BY FOUR DIFFERENT COMBINATION OF CAPITAL AND LABOUR.

•     THE MARGINAL RATE OF TECHNICAL SUBSTITUTION IS THE RATE AT WHICH ONE INPUT CAN BE SUBSTITUTED FOR ANOTHER INPUT WITHOUT CHANGING THE LEVEL OF OUTPUT.

ISO QUANT MAP

•     AN ISO QUANT IS A SET OR FAMILY OF ISO QUANT. THE POINTS LYING ON THE SAME ISO QUANT CURVE SHOWS AN EQUAL LEVEL OF OUTPUT

•     BUT EACH ISOQUANT CURVE TOWARDS TO THE RIGHT IN THE ISO QUANT MAP SHOWS THE HIGHER LEVEL OF THE OUTPUT.

•     ISO QUANT MAP

•     SET OR FAMILY OF ISO QUANTS

•     MARGINAL RATE OF TECHNICAL SUBSTITUTION

1.       THE CONCEPT OF ISOQUANT IS BASED OB ASSUMPTION OF DIMINISHING MRTS

2.       THE MARGINAL RATE OF TECHNICAL SUBSTITUTION IS THE RATE AT WHICH ONE INPUT CAN BE SUBSTITUTED FOR ANOTHER INPUT WITHOUT CHANGING THE LEVEL OF OUTPUT

3.       MARGINAL RATE OF TECHNICAL SUBSTITUTION :-CHANGE IN CAPITAL/CHANGE IN LABOUR

4.       =∆K/∆L=CAPITAL UNITS REDUCED/LABOUR UNITS ADDED

5.       MRTS IS CONSTANTLY DIMINISHING BECAUSE THE LABOUR AND CAPITAL ARE IMPERFECT SUBSTITUTE AND AS LABOUR IS USED IN PLACE OF CAPITAL,SUBSTITUTION BECOMES MORE AND MORE DIFFICULT.

•     EXPLANATION

•    

QUANT CURVE

•     BETWEEN TWO POINTS A AND B MRTS OF LABOUR FOR CAPITAL GOES ON DIMINISHING.

•     GRAPH

•     PROPERTIES OF AN ISOQUANT

1.       IT SLOPES DOWNWARD TO THE RIGHT

2.       NEGATIVELY SLOPED

3.       THE REASON : LAW OF DIMINISHING MARGINAL RATE OF TECHNICAL SUBSTITUTION

4.       IN ORDER TO MAINTAIN A GIVEN LEVEL OF INPUT MUST BE OFFSET BY AN INCREASE IN THE USE OF ANOTHER INPUT.

5.       SHAPE OF ISO QUANT CURVE CANNOT BE HORIZONTAL,VERTICAL AND UPWARD SLOPING ISO PRODUCT CURVE

•     ISO QUANT CURVES ARE CONVEX TO THE ORIGIN

1.       AN ISO PRODUCT CURVE MUST ALWAYS BE CONVEX TO THE ORIGIN BECAUSE OF THE OPERATION OF THE PRINCIPLE OF DIMINISHING MARGINAL RAT OF SUBSTITUTION

2.       MRTS IS THE RATE AT WHICH MARGINAL UNIT OF AN INPUT CAN BE SUBSTITUTED FOR ANOTHER INPUT MAKING THE LEVEL OF OUTPUT REMAINS THE SAME.

3.       IT CAN NOT BE CONCAVE BECAUSE MRTS  OF LABOUR FOR CAPITAL INCREASES

4.     ISO QUANT CURVES ARE CONVEX TO THE ORIGIN

•     GRAPH

•     TWO ISO QUANT CURVES CAN NOT INTERSECT EACH OTHER

•     TWO ISO PRODUCT CURVES ALSO CANNOT  CUT EACH OTHER IF THEY INTERSECT EACH OTHER . THERE WOULD BE A CONTRADICTION AND WE WILL GET INCONSISTENT RESULT.

•     TWO ISO QUANT CURVES CAN NOT INTERSECT EACH OTHER

•     GRAPH

•     AN ISO QUANT ABOVE  AND TO THE RIGHT OF ANOTHER ISO QUANT REPRESENT HIGHER LEVEL OF OUTPUT

•     HIGHER THE ISO QUANT THE HIGHER LEVEL OF PRODUCTION

•     HIGHER THE ISOQUANT HIGHER WILL BE THE PRODUCTION

•     GRAPH•     NO ISO QUANT CAN TOUCH EITHER AXIS :- IF AN ISO QUANT TOUCHES THE X AXIS,IT WOULD MEAN THAT THE COMMODITY CAN BE PRODUCED WITH OL UNITS O LABOUR AND WITHOUT ANY UNITS OF CAPITAL

•     IF AN ISO QUANT TOUCHES COMMODITY CAN BE PRODUCED WITH OK UNITS OF CAPITAL AND WITHOUT ANY UNITS OF LABOUR

•     ISO QUANT NEED NOT BE PARALLEL:

•     THE SHAPE OF AN ISO QUANT DEPENDS UPON THE MARGINAL RATE OF TECHNICAL SUBSTITUTION. IF

•     EACH ISO QUANT IS OVAL SHAPED

•     IT ENABLES THE FIRM TO IDENTIFY THE EFFICIENT RANGE OF PRODUCTION.