Page 211 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes In other words, by using little more labour, whatever production increases is similar to the loss of
production by using little less capital. The production is equal to ∆TP by increasing of ∆L quantity of
labour. Thus the production is low by ∆TP due to ∆K amount of less capital.
∆TP
____
So, ∆TP = ____ ...(i)

∆K
∆L
____
We know, ∆TP = MP

∆K K
or ∆TP = MP × ∆ K (Increase in production)
K
∆TP = MP × ∆ L (Loss in production
L
MP × ∆K = MP × ∆ L
K L
(Here MP = Marginal physical product of labour, MP = Marginal physical product of capital)
L K
MP
∆K
∴ ___ = _____ L
MP
∆L
K
So the rate of technical substitution is equal to the rate of marginal products of capital and labour. The
marginal rate of technical substitution between capital and labour has downward nature. This means
for the capital, MRTS of labour decreases. More labour is substituted for every extra unit of capital.
The Isoquant curve is the curve which represents the various combinations of factors
which do the same amount of production.

10.5 Isoquant Map

The combination of aggregate Isoquant curve represented by a figure is called Isoquant Map as it is
presented in Fig. 10.2. Isoquant map refers to the family of Isoquant
The high level of production curves placed in one diagram. It shows a set of isoquants, one for each
is represented by a right hand level of output.
side curve of an Isoquant
curve.

Fig. 10.2

Y
IQ
IQ 2 3
IQ 1

Capital

300
200
100
O X
Labour

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