EEFA - ISOQUANT - FINAL YEAR CS/IT - SRI SAIRAM INSTITUTE OF TECHNOLOGY - DR,K,BARANIDHARAN

1. Dr.K.Baranidharan
Present by…

2. Engineering
Economics &
Financial
Accountingment
EE&fa
2August 18, 2013

3. ISOQUANTISOQUANT

4. ISOQUANT- ISOCOST ANALYSISISOQUANT- 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

5. ISOQUANTSISOQUANTS
• An isoquant curve shows variousAn isoquant curve shows various
combinations of two input factors such ascombinations of two input factors such as
capital and labour , which yield the samecapital and labour , which yield the same
level of output.level of output.
• An isoquant curve represent all suchAn isoquant curve represent all such
combinations which yield equal quantity ofcombinations which yield equal quantity of
the output and any or every combination isthe output and any or every combination is
a good combination of the manufacture.a good combination of the manufacture.
• Since he prefers all these combinationSince he prefers all these combination
equally, an isoquant curve is also calledequally, an isoquant curve is also called
“product indifference curve”“product indifference curve”

6. Units
of K
40
20
10
6
4
Units
of L
5
12
20
30
50
Point on
diagram
a
b
c
d
e
a
Units of labour (L)
Unitsofcapital(K) An isoquant yielding output (TPP) of 5000 unitsAn isoquant yielding output (TPP) of 5000 units
0
5
10
15
20
25
30
35
40
45
0 5 10 15 20 25 30 35 40 45 50

7. Units
of K
40
20
10
6
4
Units
of L
5
12
20
30
50
Point on
diagram
a
b
c
d
e
a
b
Units of labour (L)
Unitsofcapital(K)
0
5
10
15
20
25
30
35
40
45
0 5 10 15 20 25 30 35 40 45 50
An isoquant yielding output (TPP) of 5000 unitsAn isoquant yielding output (TPP) of 5000 units

8. Units
of K
40
20
10
6
4
Units
of L
5
12
20
30
50
Point on
diagram
a
b
c
d
e
a
b
c
d
e
Units of labour (L)
Unitsofcapital(K)
0
5
10
15
20
25
30
35
40
45
0 5 10 15 20 25 30 35 40 45 50
An isoquant yielding output (TPP) of 5000 unitsAn isoquant yielding output (TPP) of 5000 units

9. Features of ISOQUANTSFeatures of ISOQUANTS
• DOWNWARD SLOPING:DOWNWARD SLOPING:
• An isoquant must slopeAn isoquant must slope
downwoards from left to rightdownwoards from left to right
• Which implies that using moreWhich implies that using more
of one input to produce theof one input to produce the
same level of output must implysame level of output must imply
using less of the other inputsusing less of the other inputs

10. • CONVEX TO ORIGIN:CONVEX TO ORIGIN:
• Isoquants are convex to the orgine.Isoquants are convex to the orgine.
• It is because the input factors are notIt is because the input factors are not
perfect substitutes.perfect substitutes.
• One input factor can be substituted byOne input factor can be substituted by
another input factor in a “another input factor in a “diminishingdiminishing
marginal ratemarginal rate””
• If the input factors were perfectIf the input factors were perfect
substitutes, the isoquant would be asubstitutes, the isoquant would be a
fallingfalling straight linestraight line..

11. 0
5
10
15
20
25
30
35
0 10 20 30 40 50
Isoquant where input factors are perfect substitutesIsoquant where input factors are perfect substitutes
Units of labour (L)
Unitsofcapital(K)
Assumptions
TC = 200 000
TC = 300 000
TC = 400 000
TC = 500 000

12. • When the input are used in a fixedWhen the input are used in a fixed
proportion and substitution of oneproportion and substitution of one
input for other cannot take place, theinput for other cannot take place, the
isoquant will be L shaped.isoquant will be L shaped.

13. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Isoquants where input are usedIsoquants where input are used
in a fined proportionin a fined proportion
Complementary inputs MRTS=0

14. 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.

15. 0
10
20
30
0 10 20
Q1
Q2
Q3
Q4
Q5
Unitsofcapital(K)
Units of labour (L)
An isoquant mapAn isoquant map

16. • DOES NOT TOUCH AXES:DOES NOT TOUCH AXES:
• The Isoquants touches neither xThe Isoquants touches neither x
nor Y axis as both input arenor Y axis as both input are
required to produce a givenrequired to produce a given
productproduct

17. Dr.K.Baranidharan
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