PPT ON ISOQUANTS AND ISO COST CURVE MBA 1st YEAR

1. 06-09-2015 ISOQUANT CURVE & ISOCOST CURVE 1
Prepared By:
Lavika Arora
Malvika Awasthi
Manish
Monika Dangi
Maqbool

2. ISOQUANTS
Production function with two variable
inputs or equal product curves
According to Ferguson, “ An isoquant is a
curve showing all possible combinations
of inputs physically capable of producing
a given level of output”
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An isoquant represents all those
combinations of inputs which
are capable of producing the
same level of output
An isoquant is also known as
Production-Indifference curve

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Factor
Combination
Factor X Factor Y
A 1 12
B 2 08
C 3 05
D 4 03
E 5 02
Various combination of X and Y to produce a given level of output
Each of the factor combinations A,B,C,D and E represents the same level of
production
Say 100 units.

5. When we plot them, we get a isoquant curve :
FACTOR-Y
FACTOR-X
Y-axis
X-axis
0
4
6
3 4
8
12
1 2 5
ISOQUANT CURVE
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6. Assumptions of Isoquants
 Only two factors or inputs of production
 Factors of production are divisible into small
units and used in various proportions
 Technical conditions of production are not
possible to change at any point of time
 Different factors of production are used in a
most efficient way
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7. Types of Isoquant
 Linear Isoquant
 Right – angle Isoquant
 Convex Isoquant
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8. Linear Isoquant
In Linear Isoquant there is perfect subtituability of Inputs
For Example – 100 units can be produced by using only
capital or labour or by number of combination of both
capital and labour , say 1 unit of labour and 5 units of capital
,or 2 units of labour and 3 units of capital or various amount
of electric power can be produced by burning gas only . Oil
and gas are prefect substitute here.
Hence , the Isoquants are straight lines.
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9. Q1 Q2 Q3 Q4
Gas
Oil
Q5

10. Right – Angle Isoquant
There is complete non – substituability between
the inputs
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11. Q3= 3 Scooters
Chassis
Wheels
Q2= 2 Scooters
Q1= 1 scooter
2 4 6

12. Convex Isoquant
Convex Isoquant assumes substituability of inputs but the
substiuability is not perfect
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13. L1 L2 L3
C1
C2
C3
Cloths
Labour
Q2
Q1

14. Properties of Iso quants
 Isoquants are Negatively Sloped : They normally
slope from left to right means they are negatively sloped .
The reason is when the quantity of one factor is reduced ,
the same level of output can be achieved only when the
quantity of other is increased
 Higher Isoquants Represents Larger Output :
Higher isoquant is one that is further from he point of
origin. It represents a larger output hat is obtained by using
either same amount of one factor and the greater amount of
both the factors
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15.  No Two Isoquants Intersect or Touch each other :
Isoquant do no intersect or touch each other because they
represent different level of output
 Isoquants are convex to the origin : In most production
processes the factors of production have substituability.
Labour can be substituted for capital and ice versa .
however the rate at which one factor is substituted
for the other in production process i.e marginal rate of
technical substitution (MRTS) also tends to fall
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16. SIGHIFICANCE OF ISOQUANT
CURVE IN COST ANALYSIS
1. THE ISO-QUANT CURVE HELPS FIRMS ADJUST THEIR INPUT AGAINST
THEIR OUTPUT
THE IS A METHOD USED IN MICROECONOMICS TP MEASURE THE
INFLUENCE OF INPUT
ON PRODUCATION LEVELS AND OUTPUT POSSIBILITIES.
2. THE ISO-QUANT CURVE LINE IS AN IMPORTANT COMPONENT FOR
ANALYSING PRODUCER
BEHAVIOUR. THE ISO-COST LINE ILLUSTRATES ALL THE POSSIBLE
COMBIMATION OF TWO
FACTOR THAT CAN BE USED AT GIVEN COSTS AND FOR A GIVEN
PRODUCER’S BUDGET
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17. 3. A FIRM CAN PRODUCE A GIVEN LEVEL OF OUTPUT USING
EFFICIENTLY DIFFERENT
COMBINATION OF TWO INPUTS . THE ISO-QUANT CURVE USED FOR
CHOOSING
EFFICENT COMINATION OF THE INPUTS , THE PRODUCER SELECTS
THAT COMBINATION
OF FACTOR WHICH HAS THE LOWER COST OF PRODUCATION
4. THE ISO-QUANT PLAYS A SIMILAR ROLE IN THE FIRM’DECISION
MAKING ,THE FIRM
FACES MANY ISO-COST LINES DEPENDING UPON THE DIFFERENT
LEVEL OF EXPENDITURE
THE FIRM MIGHT MAKE.A FIRM MAY INCUR LOW COST BY PRODUCING
RELATIVELY
LESSER OUTPUT OR IT MAY INCUR RELATIVELY HIGH COST BY
PRODUCING A RELATIVELY
LARGE QUANTITY
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18. ISO-COST / EQUAL-COST LINE :-
Iso-Cost line represent the price of the factor. It
shows various combination of two factors
which the firm can buy with, given outlay.
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19. If the price of factor X is Rs.10 and that of Y is Rs.20,
the firm can spend its outlay on X and Y or it can spend
the entire outlay on Y and buy 50 units of it with zero
units of Y or it can spend the entire outlay on Y and buy
50 units of it with zero units of X factor. In between, it
can have any combination of X and Y.
Suppose a firm has Rs.1000 to spend on the two
factors X and Y.
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20. One can show iso-cost line diagrammatically also. The
X-axis shows the units of factor X and Y-axis the units of
factor Y. when entire Rs.1000 are spend on factor X we
get OB and when entire amount is spent on factor Y we
get OA. The straight line AB which joins point A and B
will pass through all combinations of factors X and Y
which the firms can buy with outlay of Rs.1000. The line
AB is called Iso-cost line .
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21. E
C
A
B D F
O
Factor-X
Factor-
Y
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