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IsoQuants and Isocost
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Isoquants:- is the locus of all technically
efficientcombinations for producing a given level of output
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Isocost
It is the locus of all different combinations of labourand
capital that a firm can employ , given the totalcost and price of
inputs
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Producer Equilibrium
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Marginal Rate of Technical substitution
It measures the reduction in one input, due to unitincrease in
the other input that is just sufficient tomaintain the same level
of output.
MRTS of capital for labour would be the amount oflabour that the
firm would be willing to give up foradditional unit of capital.
MRTS of labour for capital is defined as the numberof units of
capital which can be replaced by one unit
of labour, the level of output remaining unchanged. MRTS is
equal to the ratio of the marginal physical
products of the two factors.
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MRTS
Factorcombinations
U1nits ofLabour
Units of capital MRTS of L for K
A 1 12
B 2 8
C 3 5D 4 3
E 5 2
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Special shapes of Isoquants
Linear Isoquants:- when there is perfectsubstitutability between
two factors, isoquant
becomes linear
Right-angled Isoquants:- in case of complementaries
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Perfect substitutes case
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Right-angled Iso quant
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Elasticity of Technical substitution (betweenfactors)
MRTS of factor X for factor Y declines as factor X issubstituted
for factor Y along an isoquant.
The relative change in the factor proportions( or
input ratios) as a consequence of the relative changein the
marginal rate of technical substitution isknown as elasticity of
substitution between factors.
It measures the percentage change in factor
proportions due to change in MRTS
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Expansion Path
It is the line formed by joining the tangency pointsbetween
various isocost lines and the correspondinghighest attainable
isoquants.
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