1- Explain and illustrate the concept of isoquant.
Assumptions of isoquant:
The concept of isoquant is also illustrated by the help of the following production preference schedule.
Combinations |
Capital (K) |
Labor (L) |
MRTS(KL)=L/K
|
Output (Units) |
A |
1 |
13 |
..... |
100 |
B |
2 |
9 |
4 |
100 |
C |
3 |
6 |
3 |
100 |
D |
4 |
4 |
2 |
100 |
E |
5 |
3 |
1 |
100 |
2- What do you mean by isoquant? Explain the properties of isoquant.
Properties of isoquant
There are various properties of Iso-quants as given below.
1- Higher IQ represents higher level of output
In the above figure, combination B which lies on the upper IQ represents more of K & L inputs than combination A on lower IQ.
2- IQs do not intersects each other
Each of the IQ represents a particular level of output so can not intersect each other. If it does, it violates the assumption of IQ as shown in the figure below.
3-IQ is convex to the origin
An IQ is always convex to the origin due to diminishing marginal rate of technical substitution. The MRTS of one input for another declines when more and more of one input is substituted for another. Only a convex IQ represents diminishing MRTS. So it is always convex to the origin as shown in the figure below.
When it is concave, it represents increasing MRTS which is absurd to the rule of IQ.
4- IQ does not touch either axis.
5- IQ is sloping downward
An IQ is sloping downward from left to right because when the producer wants to have more than one input, the quantity of other input decreases so that he has the same level of output. So IQ is neither vertical nor horizontal and nor sloping upward. It is sloping downward as shown in the following figure.
3- What do you mean by isoquant map?
Ans: Isoquant map is a set or a collection of isoquant curves in which each of the curves representing different level of output. In the isoquant map a higher isoquant represent higher level of output because the higher isoquant contains more units of both inputs or more units of at least one input. On the contrary, a lower isoquant represent lower level of output because it contains only a few units of both inputs or a few units of at least on input. The following figure shows the isoquant map.
The above figure shows a set of isoquant in which there are three isoquants, IQ1, IQ2 and IQ3, each of them representing different level of output. Higher isoquant representing higher level of output whereas lower isoquant representing lower level of output.
4- Explain the law of diminishing marginal rate technical substitution (MRTS).
Ans: The marginal rate of technical substitution is an important tool of producer’s indifference (IQ) curve analysis. MRTS is the rate at which units of two inputs are exchanged to or substituted for each other in such a way that the level of output remains the same. In other words, MRTS of capital K for labor L `MRS_(KL)` is the unit of L that will be given up for obtaining each additional unit of K.
Symbolically, it is expressed as;
`MRTS_(KL)=-\frac{ΔL}{ΔK}`
The concept of MRTS can be more clear by the help of the following schedule and diagram.
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