Thursday, 4 August 2011

Discuss isoquant curves and isoquant maps.

In economics, an isoquant (derived from quantity and the Greek word iso, meaning equal) is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the isoquant mapping deals with the cost-minimization problem of producers. Isoquants are typically drawn on capital-labor graphs, showing the technological tradeoff between capital and labor in the production function, and the decreasing marginal returns of both inputs. Adding one input while holding the other constant eventually leads to decreasing marginal output, and this is reflected in the shape of the isoquant. A family of isoquants can be represented by an isoquant map, a graph combining a number of isoquants, each representing a different quantity of output. Isoquants are also called equal product curves.

Production Isoquant/Isocost Curve
An isoquant map where Q3 > Q2 > Q1.
A typical choice of inputs would be labor for input X and capital for input Y.
More of input X, input Y, or both is required to move from isoquant Q1 to Q2, or from Q2 to Q3.

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