Dr.K.

Baranidhara
n
Present by

Engineering
Economics &
Financial
Accountingment

Ee&fa
September 8, 2015

ISOQUANT

ISOQUANT- ISOCOST ANALYSIS

Isoquant
A line indicating the level of inputs required
to produce a given level of output
Iso-

meaning -

Equal

-Quant as in quantity
Isoquant a line of equal quantity

ISOQUANTS
An isoquant curve shows various
combinations of two input factors such as
capital and labour , which yield the same
level of output.
An isoquant curve represent all such
combinations which yield equal quantity of
the output and any or every combination is
a good combination of the manufacture.
Since he prefers all these combination
equally, an isoquant curve is also called
product indifference curve

An isoquant yielding output (TPP) of 5000 units

45

40

Units
of K
40
20
10
6
4

Units of capital (K)

35
30
25

Units
of L
5
12
20
30
50

Point on
diagram
a
b
c
d
e

20
15
10
5
0
0

10

15

20

25

30

Units of labour (L)

35

40

45

50

An
isoquant yielding output (TPP) of 5000 units
45
a

40

Units
of K
40
20
10
6
4

Units of capital (K)

35
30
25

Units
of L
5
12
20
30
50

Point on
diagram
a
b
c
d
e

20
15
10
5
0
0

10

15

20

25

30

Units of labour (L)

35

40

45

50

An isoquant yielding output (TPP) of 5000 units

45

40

Units
of K
40
20
10
6
4

Units of capital (K)

35
30
25

Units
of L
5
12
20
30
50

Point on
diagram
a
b
c
d
e

20
15

10

5
0
0

10

15

20

25

30

Units of labour (L)

35

40

45

50

Features of ISOQUANTS

DOWNWARD SLOPING:
An
isoquant
must
slope
downwoards from left to right
Which implies that using more
of one input to produce the
same level of output must imply
using less of the other inputs

 CONVEX TO ORIGIN:
Isoquants are convex to the orgine.
It is because the input factors are not
perfect substitutes.
One input factor can be substituted by
another input factor in a diminishing
marginal rate
If the input factors were perfect
substitutes, the isoquant would be a
falling straight line.

Isoquant where input factors are perfect substitutes

35

Assumptions

Units of capital (K)

30
25

TC = 200 000

20

TC = 300 000
15

TC = 400 000
10

TC = 500 000

5
0
0

10

20

30

Units of labour (L)

40

50

 When the input are used in a fixed

proportion and substitution of one
input for other cannot take place, the
isoquant will be L shaped.

Isoquants where input

are used in a fined

proportion
Complementary inputs MRTS=0

McGraw-Hill/Irwin

2004 The McGraw-Hill Companies, Inc., All

Rights Reserved.

DO NOT INTERSECT:
Two isoquants do not intersect.
It is because each of these denote a
particular level of output.

If a manufacturer wants to operate at a

higher level of output, he has to switch
over to another isoquants with a higher
level of output.

McGraw-Hill/Irwin

2004 The McGraw-Hill Companies, Inc., All

Rights Reserved.

An isoquant map

Units of capital (K)

30

20

10

Q1

0
0

10

Units of labour (L)

Q5
Q4
Q3

Q2
20

 DOES NOT TOUCH AXES:

The Isoquants touches neither x
nor Y axis as both input are
required to produce a given
product

INDEX
Isocosts
Least-cost Combination Of
Inputs
Cobb-Douglas production
function
Law of Return to Scale

ISOCOSTS
1
8

Isocosts refer to the cost curve that

represents the combination of inputs
that will cost a producer the same
amount of money.
Isocosts denotes IQ2a particular level of
total cost for a given level of production.
The level of production changes, the
total cost changes and, thus the isocosts
curve moves upwards

1
9

The
three
download sloping
straight line cost
curves (assuming
that the input
prices are fixed,
no
quantity
discount
are
available)
each
costing
Rs.1.0
lakh, Rs.1.5 lakh
and Rs.2.0 lakh
for the
output
leavels of 20,00030,000 and 40,000
units.

c
a
p
i
t
a
l

I
C
=
1
.
0

I
C
=
1
.
5

I
C
=
2
.
0

Labour
The total cost as represented by each cost
curve, is calculated by multiplying the quantity
of each input factor with its respective price.

Least-Cost Combination
2
0

A manufacturer has to produce

at a lower cost to attain a higher
profit
Isocosts and isoquants can be
used to determine the input
usage that minimizes the cost
of production

2
1

The slope of an isoquant is equal to that of

an isocost is the place of the point of cost
of production.
This can observed by superimposing the
isocosts on isoproduct curve

 It is possible because the axes in both maps

represent the same input variable
The points of tangency A, B and C on each of the
isoquant curves represent the least cost combination
of inputs, yielding the maximum level of output.
Any output lower or higher than this will result in a
higher cost of production.
y

Scale line
Units of
Capital (K)
A

C
B
x

Units of labour (L)

22

9-

Cobb-Douglas Production Function

2
4

2
5

2
6

Though the Cobb-Douglas production

function was based on macro level study.
It has been very useful for interpreting
economic result.

Dr.K.Baranidhara
n THANK YOU