Properties Of Isoquants

4 Key excerpts on "Properties Of Isoquants"

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  eBook - ePub

  Principles of Agricultural Economics

  • Andrew Barkley, Paul W. Barkley(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Figure 5.1 , each axis represents one input in the production process. Points within the quadrant represent output, and help answer a different question about production. The issue centers on selecting the profit-maximizing combination of two inputs, rather than the optimal level of one input.

  5.2 Isoquants

  The two points shown in Figure 5.1 represent two points on an Isoquant , which relates two variable inputs to a given level of output.

  • Isoquant = a line indicating all combinations of two variable inputs that will produce a given level of output.

  The prefix “iso” refers to “same, or equal,” and “quant” refers to the numerical value of output. Therefore, the term isoquant means “equal quantity of output.” An isoquant is a line on which every point refers to the same level of output. Figure 5.1 shows two possible production methods for the flour mill. Suppose that there are several other combinations of labor and capital that could produce the same level of output, as shown in Figure 5.2 .

  Every point on the isoquant, the curved line in Figure 5.2 , represents the same level of output, Y1 (100 5lb bags of flour). The isoquant shows that capital and labor are substitutable: a flour mill can use any combination of K and L on the isoquant to produce the same quantity of flour. Efficient firm managers will recognize the potential for substitution among inputs, and will select the profit-maximizing combination of inputs.

  5.2.1 Examples of isoquants

  Numerous combinations of inputs can produce a given quantity of most agricultural products. Corn and soybean producers in Iowa can use different combinations of land, machinery, chemicals, and labor to produce given quantities of corn and soybeans. Wheat producers make choices when selecting the appropriate amount of machinery to use.

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  eBook - PDF

  Principles of Engineering Economics with Applications

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi(Authors)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  If prices of factors are given the usual assumption in the theory of the firm, cost depends only on output Q, which expresses graphically the cost function: C = f(Q) ceteris paribus Here ceteris paribus implies that all other determinants of costs, that is, the production technology and the prices of factors, remain unchanged. If these factors change, the cost curve will shift upwards or downwards. 3.7 CONCEPT OF ISOQUANTS An isoquant is the locus of combination of all the technically efficient methods or all the combinations of factors of production for producing a given level of output. On the basis of degree of substitutability of factor inputs, an isoquant can have various shapes. The following are the different shapes of an isoquant: (i) When the factors of production are perfectly substitutable, then the isoquant is linear. This is also known as linear isoquant. (ii) When the factors of production are perfect complements, then the isoquant takes the shape of a right angle. This type of isoquant is known as Leontief isoquant or input- Elementary Economic Analysis 97 output isoquant. (iii) When the factors of production have limited substitutability, then the isoquant will have kinks. This is also known as kinked isoquant or activity analysis isoquant or linear programming isoquant. (iv) When the factors of production have continuous substitutability, then the isoquant will have a smooth convex curve. This type isoquant is called a convex isoquant. The isoquant gives all input bundles that produce exactly y units of output. (i) There is perfect knowledge of the relevant information on the factor inputs and its prices to the producer. (ii) The output or production set are defined as ordinal, where producer can rank the production possibility sets of each combination of inputs. (iii) The marginal rate of technical substitution of one input for another is diminishing.

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  eBook - ePub

  Principles of Agricultural Economics

  • Andrew Barkley, Paul W. Barkley(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  The mill manager must hire workers and a mill (a location and machinery) to produce flour from wheat. The key idea here is that there are several possible production processes for producing flour.

  Figure 5.1 shows two different production practices, and is different from the graphs shown in earlier chapters. The earlier graphs showed input on the horizontal axis and output on the vertical axis. In Figure 5.1 , each axis represents one input in the production process. Points within the quadrant represent output and help answer a different question about production. The issue centers on selecting the profit-maximizing combination of two inputs, rather than the optimal level of one input.

  Figure 5.1 Production process for a flour mill in Chicago, Illinois

  5.2 Isoquants

  The two points shown in Figure 5.1 represent two points on an isoquant , which relates two variable inputs to a given level of output.

  • •
    Isoquant =
    a line indicating all combinations of two variable inputs that will produce a given level of output.

  The prefix “iso” refers to “same, or equal,” and “quant” refers to the numerical value of output. Therefore, the term isoquant means “equal quantity of output.” An isoquant is a line on which every point refers to the same level of output. Figure 5.1 shows two possible production methods for the flour mill. Suppose that there are several other combinations of labor and capital that could produce the same level of output, as shown in Figure 5.2 .

  Figure 5.2 Isoquant for a flour mill in Chicago, Illinois

  Every point on the isoquant, the curved line in Figure 5.2 , represents the same level of output, Y1 (100 5-lb bags of flour). The isoquant shows that capital and labor are substitutable: a flour mill can use any combination of K and L on the isoquant to produce the same quantity of flour. Efficient firm managers will recognize the potential for substitution among inputs and will select the profit-maximizing combination of inputs.

  5.2.1 Examples of isoquants

  Numerous combinations of inputs can produce a given quantity of most agricultural products. Corn and soybean producers in Iowa can use different combinations of land, machinery, chemicals, and labor to produce given quantities of corn and soybeans. Wheat producers make choices when selecting the appropriate amount of machinery to use.

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  eBook - PDF

  Microeconomic Theory

  Basic Principles and Extensions

  • Walter Nicholson, Christopher Snyder(Authors)
  • 2016(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  • Isoquants are usually assumed to be convex—they obey the assumption of a diminishing RTS . This assumption cannot be derived exclusively from the assumption of diminishing marginal physical produc-tivities. One must also be concerned with the effect of changes in one input on the marginal productivity of other inputs. • The returns to scale exhibited by a production function record how output responds to proportionate increases in all inputs. If output increases proportionately with input use, there are constant returns to scale. If there are greater than proportionate increases in output, there are increasing returns to scale, whereas if there are less than proportionate increases in output, there are decreasing returns to scale. • The elasticity of substitution ( σ ) provides a measure of how easy it is to substitute one input for another in production. A high σ implies nearly linear isoquants, whereas a low σ implies that isoquants are nearly L-shaped. • Technical progress shifts the entire production func-tion and its related isoquant map. Technical improve-ments may arise from the use of improved, more productive inputs or from better methods of economic organization. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-300 Chapter 9: Production Functions 319 Problems 9.1 Power Goat Lawn Company uses two sizes of mowers to cut lawns. The smaller mowers have a 22-inch deck. The larger ones combine two of the 22-inch decks in a single mower. For each size of mower, Power Goat has a different production function, given by the rows of the following table. Output per Hour (square feet) Capital Input (# of 22 s mowers) Labor Input Small mowers 5,000 1 1 Large mowers 8,000 2 1 a. Graph the q 5 40,000 square feet isoquant for the first production function. How much k and l would be used if these factors were combined without waste? b.

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