Question

What do you understand by Equal Product Curves Analysis? Explain clearly.

What are the properties of Isoquants?

Answer 1

EQUAL PRODUCT CURVES ANALYSIS -

 

Indifference Curves Analysis has an important place in describing consumer behaviour. Through this technique we can find how a consumer, with his given income and prices of goods, can find his equilibrium point which will give him maximum satisfaction. This technique can be used in production analysis also and we can find a producer's equilibrium, which maximises his output when the resources and prices of factors are given. This technique is called Equal Product Curves analysis. Equal Product Curves can be defined as follows:

 

"Equal Product curves are those curves which show different combinations of factors of production which would yield same level of output.”

 

The equal product curves are also called Isoquants, Isoproduct Curves or Production Indifference Curves.

 

Properties of Isoquants -

1. The Isoquants are downward sloping from left to right.

2. They are convex to origin.

3. A higher isoquant shows a higher level of output.

4. Isoquants would not intersect each other.

5. They would not touch either x or y axis.

6. Every Isoquant would show a specific level of output.

 

In the following table we have shown several combinations of two factors which give the same level of output. We take labour and capital as two factors.

 

                                                 Table 1.1

                                     (Equal Product Combinations)

 

Combination	Labour (L)       (Nos.)	Capital (K)     (Units)	MRTS = K/L	Output (No. of Units)
A	2	25	-	100
B	3	20	5	100
C	4	16	4	100
D	5	13	3	100
E	6	11	2	100

 

When we observe the above table we see that when various combinations of Labour and Capital are combined, we get an output of 100 units. As we move from combination A to E, we find that Labour is gradually substituting Capital but the rate at which this substitution is taking place is gradually declining. This rate is called Marginal Rate of Technical Substitution (MRTS). In the beginning 1 unit of labour is substituting 5 units of capital, but this rate gradually goes down and from combination D to E, 1 unit of labour can substitute only 2 units of capital. Thus, we find that MRTS is continuously diminishing. The reason for diminishing MRTS is that factors of production are imperfect substitutes of each other and hence the capacity of a factor to substitute another gradually goes down, as we take more units of a given factor.

 

"Equal Product curves are those curves which show different combinations of factors of production which would yield same level of output.”