Isoquant analysis, Managerial Economics

ISOQUANT ANALYSIS

In the long run it is possible for a firm to produce the same output using different combinations of two factors of production.  For instance it the two factors of production, are capital and labour, then labour may be substituted for capital or vice versa.  Thus for instance an output of 69 units of X can be produced by using units of capital and one unit of labour or six units of labour and one unit of capital.

If the various combinations of factors of production which produce the same amount of output are plotted on a graph this produces an isoquant or equal product curve.

1409_isoquant analysis.png

Theoretically, we can construct any number of isoquants on the graph to produce an isoquant map.  They are downward sloping because although capital can be substituted for labour or vice versa they are not perfect substitutes.  Therefore as we substitute capital for labour, for example, it takes more and more units of capital to replace labour, as capital becomes a less and less perfect substitute.  Like indifference curves isoquants can never intersect.  The slope of the isoquant shows the substitution ratios of the factors of production.

Posted Date: 11/27/2012 7:23:45 AM | Location : United States







Related Discussions:- Isoquant analysis, Assignment Help, Ask Question on Isoquant analysis, Get Answer, Expert's Help, Isoquant analysis Discussions

Write discussion on Isoquant analysis
Your posts are moderated
Related Questions
To eliminate competition and thereby secure higher prices, firms producing a specific product can come together and make monopoly agreements. These are called as industrial combina

a bus operates two routes,one to harare and another one to johanesburg.the company analyst estimated that the elasticity of demand for joburg is 0.9 while for harare is 2.the compa


The Social Cost of Unemployment i.      For the individual, there is the demoralizing effect which can be devastating particularly when they are old.  This is because as some

Q. Explain about Linear Isoquant? : In this case, isoquant would be straight lines as in Figure below. This type presumes perfect substitutability of factors of production. I

Advertising expenditure must remain the same If advertising expenditure of a firm increases, consumers may be tempted to buy more of its product. Hence the advertising expendit

Prices of other goods must remain constant Changes in the prices of other goods frequently impinge on the demand for a particular commodity. If prices of commodities for which

The most significant uses of the price elasticity of demand, used specifically in business decision-making. It refer to the relationship between price elasticity and the marginal c

CHARACTERISTICS OF THE THREE STAGES   Stage I Here the Total Physical Product, Average Physical Product and Marginal Physical Product are all increasing.  However MPP

Ask questiHow does economic theory contribute to managerial decisions? on #Minimum 100 words accepted#