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Microeconomic Theory

Notes
Fig. 10.15

Y Constant Returns to Scale
IQ
3 P
IQ
2
6 IQ 1 150
Capital 4 100

2
50
0 X
2 4 6
Labour

10.14 Isoquant Curve and Returns to a Factor

Returns to a factor means the change in production even if changes in a single factor and others factors
are stable. Like returns to a scale, returns to a factor is also of three types–Increasing Returns, Constant
Returns and Decreasing Returns. Returns to a factor can be described by iso product technique.
Suppose that labour is a variable factor while capital is a constant factor. Returns to factor of variables
can be described as follows—
1. Increasing Returns to a Factor: Increasing Returns to a Factor means the total production increases in
increased ratio using variable factors like extra units of labour. Figure 10.16 represents an increasing
returns to a factor.

Fig. 10.16

Increasing Returns to a Factor
Y
EF> FG > GH
IQ IQ IQ
1 2 3 IQ
4
Capital R E F G H P

400
300
Short period 200
O expansion path 100 X

Labour

In Fig. 10.16, capital is stable in unit OR. Line RP indicates that to rise in production, how can the
quantity of labour be used. This is called Output Path. The iso-product curves for the 100, 200, 300 and
400 units represent that the increase in production is happening by alternates of 100 units. This iso –
product curve cuts production path RP on point E, F, G and H. The differences between iso-product
curves are decreasing; it means there is low labour needed for alternatives of 100 units. This means

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