Isoquant

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 along with isocost curves in 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.

An isoquant shows that extent to which the firm in question has the ability to substitute between the two different inputs at will in order to produce the same level of output. An isoquant map can also indicate decreasing or increasing returns to scale based on increasing or decreasing distances between the isoquant pairs of fixed output increment, as output increases. If the distance between those isoquants increases as output increases, the firm's production function is exhibiting decreasing returns to scale; doubling both inputs will result in placement on an isoquant with less than double the output of the previous isoquant. Conversely, if the distance is decreasing as output increases, the firm is experiencing increasing returns to scale; doubling both inputs results in placement on an isoquant with more than twice the output of the original isoquant.

As with indifference curves, two isoquants can never cross. Also, every possible combination of inputs is on an isoquant. Finally, any combination of inputs above or to the right of an isoquant results in more output than any point on the isoquant. Although the marginal product of an input decreases as you increase the quantity of the input while holding all other inputs constant, the marginal product is never negative in the empirically observed range since a rational firm would never increase an input to decrease output.

An isoquants shows all those combinations of factors which produce same level of output. An isoquants is also known as equal product curve or iso-product curve.

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