Isoquant: Assumptions and Properties

Isoquant means equal quantity. Isoquant is therefore known as the production indifference curve or equal product curve. As the name itself suggests, an isoquant is the locus of all those combinations of inputs (labour and capital) which yield the same output. Hence, all the points on an isoquant represent different combinations of labour and capital, which can be used to produce the same quantity of output.

Now the question is that, how the different combinations of inputs can yield the same output. The answer to this question is that since there are different techniques of production available in the world, thus, the different techniques of production requires different combinations of inputs. Thus it is possible to produce the same level of output using different combinations of inputs and techniques of production.

Assumptions of Isoquant

The assumptions for deriving an isoquant are as follows:

• There are only two inputs/factors (labour and capital), L and K, to produce a commodity X.
• Labour and capital can be substituted for each other up to a certain limit at a diminishing rate of substitution.

The production function is continuous in nature, indicating that both labour and capital are perfectly divisible in nature and can be substituted in any small quantity.

Given these assumptions, isoquant can be derived based on the following way:

Table: Capital–Labour Combinations and Output

Points		Input Combinations K + L	Output
A		OK4 + OL1	= 100
B		OK3 + OL2	= 100
C		OK2 + OL3	= 100
D		OK1 + OL4	= 100

As it is quite clear from the above table that different input combinations, i.e. point A, B, C, and D, yield the same level of output, 100. Thus an isoquant should pass through these points. Moreover, as can be seen from these combinations that both inputs are substitutes for one another. Now based on all these, we can draw the isoquant as shown in Figure 1:

As represented above, IQ₁ yields the same level of output, i.e. 100 units of X using different combinations of l and k. But it is important to note here that the movement from point A to D indicates an increase in the employment of labour and a reduction of capital in the production process.

This clearly indicates that labour and capital are perfect substitutes for each other as the same quantity of X can be produced by either more of labour/less of capital or by more of capital/less of labour.

A higher isoquant represents higher output produced using more of both labour and capital combinations, as represented by IQ₂ in the above diagram, which yields 200 units of X.

Isoquants vs Indifference Curves:

An isoquant is analogous to an indifference curve in more than one way. In it, two factors (capital and labour) replace two commodities of consumption. An isoquant shows an equal level of the product, while an indifference curve shows an equal level of satisfaction at all points. The properties of isoquants, as we shall study below, are exactly similar to those of indifference curves. However, there are certain differences between isoquants and indifference curves.

● Firstly, an indifference curve represents satisfaction which cannot be measured in physical units. In the case of an isoquant, the product can be measured in physical units.

● Secondly, on an indifference map, one can only say that a higher indifference curve gives more satisfaction than a lower one, but it cannot be said how much more or less satisfaction is being derived from one indifference curve as compared to the other, whereas one can easily tell by how much output is greater on a higher isoquant in comparison with a lower isoquant.

Properties of Isoquant:

● Negative slope of isoquant: The negative slope of the isoquant implies the substitution of one input for another so that output remains the same. It means that if one of the inputs is reduced, the other input has to be increased so that the total output remains unaffected. Moreover, an isoquant is always negative in the economic region, where the substitution between the inputs is technically efficient.

● Convexity: Isoquants are convex to origin because of the diminishing marginal rate of technical substitution.

Here the marginal rate of technical substitution implies the rate at which one input is substituted for the other input at different levels without affecting the total output. Symbolically,

MRTS is always diminishing because of two reasons:

1. No factor is a perfect substitute for another and
2. Inputs are subject to diminishing marginal returns.

Hence, if we increase the employment of labour by one unit, then it leads to a decrease in the capital, and this decrease in the capital reduces with the employment of more and more labour by one more unit, keeping the output level the same. Thus, MRTS is diminishing in nature.

Moreover, the isoquants never intersect with each other and are never tangent to each other. Else there will be two possibilities:

• The same combination of inputs can produce two different quantities of the same commodity and
• A given quantity of a commodity can be produced with a smaller as well as a larger input combination.

For instance, consider Figure 2; if the isoquants are as follows, then:

Point M represents that the same level of combination of labour and capital can produce two different levels of output, 100 and 200. Moreover, if we look at point k and point J, then both of them represent that the L2 unit of labour with more capital is yielding 200 output, and the L2 unit with less capital is yielding 100 output.

Hence both of these conditions violate the assumptions of isoquant. Hence, we conclude that due to the problem of inconsistency, isoquant neither intersects nor tangents to each other.

Additionally, higher isoquant represents a higher level of output produced. This is because any combination on the higher isoquant comprises larger input combinations, which will, in turn, produce a higher level of output.

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2. Methods of Analysis in Economics
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4. Concept of Market & Market Mechanism in Economics
5. Concept of Demand and Supply in Economics
6. Concept of Equilibrium & Dis-equilibrium in Economics
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8. Ordinal Utility Theory: Meaning & Assumptions
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11. Consumer Equilibrium: Ordinal Approach, Income & Price Consumption Curve
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13. Measuring Effects of Income & Excise Taxes and Income & Excise Subsidies
14. Normal Goods: Income & Substitution Effects
15. Inferior Goods: Income & Substitution Effects
16. Giffen Paradox or Giffen Goods: Income & Substitution Effects
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18. Demand Elasticity: Price Elasticity, Income Elasticity & Cross Elasticity
19. Determinants of Price Elasticity of Demand
20. Measuring Price Elasticity of Demand
21. Price Elasticity of Supply and Its Determinants
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23. Hicks’s Revision of Demand Theory
24. Choice Involving Risk and Uncertainty
25. Inter Temporal Choice: Budget Constraint & Consumer Preferences
26. Theories in Demand Analysis
27. Elementary Theory of Price Determination: Demand, Supply & Equilibrium Price
28. Cobweb Model: Concept, Theorem and Lagged Adjustments in Interrelated Markets
29. Production Function: Concept, Assumptions & Law of Diminishing Return
30. Isoquant: Assumptions and Properties
31. Isoquant Map and Economic Region of Production
32. Elasticity of Technical Substitution
33. Law of Returns to Scale
34. Production Function and Returns to Scale
35. Euler’s Theorem and Product Exhaustion Theorem
36. Technical Progress (Production Function)
37. Multi-Product Firm and Production Possibility Curve
38. Concept of Production Function
39. Cobb Douglas Production Function
40. CES Production Function
41. VES Production Function
42. Translog Production Function
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44. Traditional Theory of Costs: Short Run
45. Traditional Theory of Costs: Long Run
46. Modern Theory Of Cost: Short-run and Long-run
47. Modern Theory Of Cost: Short Run
48. Modern Theory Of Cost: Long Run
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51. Cost Curves In The Long-Run: LRAC and LRMC
52. Economies of Scope
53. The Learning Curve
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55. Perfect Competition: Pricing and Output Decisions
56. Perfect Competition: Demand Curve
57. Perfect Competition Equilibrium: Short Run and Long Run
58. Monopoly: Meaning, Characteristics and Equilibrium (Short-run & Long-run)
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69. Oligopoly: Non-Collusive Models- Cournot, Stackelberg, Bertrand, Sweezy or Kinked Demand Curve
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71. Bilateral Monopoly Market Structure
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76. Hall and Hitch Full Cost Pricing Theory
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