MUSINGS

     Home  >  The Production Process: The Behavior of...  >  Appendix: Isoquants and Isocosts  >       The Production Process: The Behavior of...  Appendix: Isoquants and Isocosts Isoquants allow us to show all of the various combinations of capital and labor that can be used to produce a level of output. For example, in the table below, 50 units of output can be produced with 1 unit of capital and 8 units of labor, or with 8 units of capital and 1 unit of labor. The two resources can be substituted for each other. We can do a similar analysis for 100 and 150 units of output. Graphing the data, we have the following: While the figure above shows only three isoquants, there are many more (one for each possible level of output). The slope of an isoquant represents the rate at which labor can be substituted for capital (reading down the isoquant from left to right, the amount of capital is decr...

I. Isoquant and Isocost (Theory of Production in the long term) II. Objective: Students will know: 1. Isoquant Curves 2. Isocost Curves 3. Cost minimization or Output maximization; Expansion Path III. Materials IV Procedure 1. Isoquant Curves Isoquant and Isocost curves are used for finding the best level of production in the long run, when all elements of production are variable, Labor (L) and Capital (K). Isoquant: A curve showing all possible combinations of inputs capable of producing a given level of output. Isoquants are convex producing a given level of output. Isoquants are convex to show there is an increasing cost to replace capital with labor (or replace labor with capital) The marginal product (MP) of labor decreases as it is used to replace capital. Marginal Rate of Technical Substitution (MRTS): The rate at which one input is substituted for another along an isoquant. MRTS = -∆K  ∆L (minus sign is added to make MRTS positive, since the slo...