Page 208 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-10: Isoquant Curve

• Understand the Production Equilibrium. Notes

• Know the Principle of Substitution.

Introduction

An Iso-cost line is a line which represents those various combinations whose costs are equal. In other
words, this line represents various combinations of two factors which can be obtained by a firm on
equal cost. Like various Isoquant curves, there are various iso-cost lines which represent various level
of production.

10.1 What is an Isoquant Curve?
In the unit of Production Function and Principle of Production, we have already studied regarding a
firm that it increases its production by using more variable factors or using all factors. In this unit, we
would study about that firm which increases its production by using those two variable factors which
are substitutes of each other. To get this, one production function is added with two variable factors.
Suppose that these factors are labour and capital. The production function of firm can be represented
like—

Y = f (K, L)
(Here Y = Production; K = Capital and L = Labour)

The variable factors are substitutable and the decreasing return to a factor law amplifies on each factors.
In this functional function, Y is a dependent variable and L and K are independent elements. So if we
draw relation between all three elements (Labour, Capital and Production) then this type of drawing
can only be obtained by three dimensional drawing, which is very complex. To draw this image it is
easier to suppose production Y as stable element. Then this functional relation states that how stable
level of production is created by using the combinations of two variable factors–capital and labour.
The Isoquant curve is called the geometric representation of this functional relation. The Isoquant
Curve is a technical relation showing how inputs are converted into outputs. It is also an efficiency
relation showing the maximum amount of output with a given amount of inputs. In other words,
if the quantity of factors and prices are given then it represents the minimization of cost or the
combination of factors in its optimum level.
Isoquant or Isoproduct has been derived from two words, Iso = Equal and Quant = Quantity or Product
= Output. So it means equal quantity or equal production. To produce a product, factors are required.
These factors can be substituted to each other. For example, production of 100 watches can be produced
by using 90 units of capital and 10 units of labour. So the production of 100 watches can also be made by
using other combinations of labour and capital like 60 units of capital and 20 units of labour or 40 units of
capital and 30 units of labour. If the combinations of two factors are represented into a curve to produce
an equal amount, then this type of curve is called Isoquant or Iso-product curve. Isoquant curve is that
curve which shows the different possible combinations of two factor inputs yielding the same amount
of output. The Isoquant curves can also be called equal product curve or iso-product curve or marginal
curve. The Isoquant curve is called marginal curve because it amplifies the marginal curve analysis of
theory of consumption to theory of production.
According to Ferguson, “An Isoquant is a curve showing all possible combinations of inputs
physically capable of producing a given level of output.”
In the words of Peterson, “An Isoquant curve may be defined as a curve showing the possible
combinations of two variable factors that can be used to produce the same total output.”

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