Isoquant - a graph that is a curve that displays various combinations of costs in a constant volume of product production. This phenomenon is also called characteristic lines of equal output.
Value
Isoquant is
a graph that allows you to understand how to get the highest profit while saving production volume. In this case, a combination of various types of costs is assumed. A review of various levels of costs. The positive slope of the graph indicates a direct relationship between the increase in different costs. A negative curve shows that when certain costs are reduced, others will inevitably increase. We give one more definition. Given that the main field of application of this concept is production, the isoquant is the curve of the constant release of a product. All points on this graph reflect a different combination of certain factors of production to create the same number of goods.
Map
If you pay attention to the theory of
production functions, we can say that the isoquant is a geometric reflection of resources in space. This graph shows how a different combination of production resources gives the same amount of output. An isoquant is a curve that cannot intersect with a similar one. Each next line, which is located further than the origin, shows a larger output, compared to the previous one. The totality of such schemes creates an isoquant map. The boundary rate of substitution of a certain resource for another falls when moving along the graph.
Example
An isoquant is a line that can be convex with respect to the origin. Consider an example. The farmer is able to produce fifty tons of grain thanks to five combines and the work of 5 employees. There is another option for obtaining a similar result. You can use four combines and the labor of ten workers. An isoquant with a downward right slope indicates the possibility of replacing one factor of production with another. The graph may look like an
indifference curve. The point at which iso-quanta and isocosts converge reflects a combination of factors in which a certain number of products will be manufactured at minimal cost.
Types
The graphic display described by us defines a combination of interchangeability and complementarity of resources. With perfect substitution, the isoquant gets a linear form. In the case of tight complementarity of resources, the graph is a point.
Detailed definition
We have already described how isoquants and isocosts interact, but it is important to clarify a few more details for a more thorough acquaintance with the described phenomenon. For simplicity of the analysis, it should be assumed that the production technology during the period under review is not subject to change. Factors within certain limits can be used interchangeably. The studied manufacturing schedule is associated with two factors: capital and labor.
Thus, we are talking about a special case of the Cobb-Douglas function. There are several combinations of labor and capital that provide a given volume within established boundaries. For clarity, let's first set aside labor indicators on the horizontal axis. On the vertical, we denote capital. Next, we indicate the points at which the company produces an equal volume of products. As a result, we get a curve. It should be called the isoquant. Each point in the graph corresponds to a certain combination of resources. With her, the company produces a set volume of products.
Thus, an isoquant map is a set of curves that characterizes a certain production function. The described phenomenon is not a set of discrete points. Isoquant is a continuous function. For each specific volume of output, it is possible to build its own curve. Such a graph is able to reflect different combinations of resources. All of them provide the manufacturer with an equal volume of production. Isoquants have no areas of increase. The boundary rate for replacing one resource with another reflects the degree of substitution of labor finances with a constant output. At any portion of the isoquant, the reflected technological substitution indicator is equal to the tangent of the angle with respect to the slope of the tangent to the curve at the indicated point. Obviously, the level of substitution of labor for capital is not constant when moving along the schedule. When moving down the curve, absolute values decrease. In this case, increasing volumes of labor should be used to compensate for the reduction in capital expenditures. In the future, MRTS is expressed in its limit value. The isoquant, in turn, takes on a horizontal view. A further reduction in costs will lead to a reduction in output.