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ISOQUANT ANALYSIS
In the long run it is possible for a firm to produce the same output using different combinations of two factors of production. For instance it the two factors of production, are capital and labour, then labour may be substituted for capital or vice versa. Thus for instance an output of 69 units of X can be produced by using units of capital and one unit of labour or six units of labour and one unit of capital.
If the various combinations of factors of production which produce the same amount of output are plotted on a graph this produces an isoquant or equal product curve.
Theoretically, we can construct any number of isoquants on the graph to produce an isoquant map. They are downward sloping because although capital can be substituted for labour or vice versa they are not perfect substitutes. Therefore as we substitute capital for labour, for example, it takes more and more units of capital to replace labour, as capital becomes a less and less perfect substitute. Like indifference curves isoquants can never intersect. The slope of the isoquant shows the substitution ratios of the factors of production.
Goals of the firm How much is produced by a firm depends on its objectives. A firm which aims to maximise its sales revenue, for example, will generally supply a greater quant
Fall in Supply When the supply falls, the supply curve shifts to the left to position S 1 S 1 . At the initial equilibrium price P 1 , quantity supplied falls from q 1
The Firm The unit that uses factors of production to produce commodities then it sells either to other firms, to household, or to central authorities. The firm is thus the uni
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Decrease in Demand At the initial equilibrium price P 1 , quantity demanded falls from q 1 to q d . But the quantity supplied is still q 1 at this price. Hence, this
Q. Explain about Linear Isoquant? : In this case, isoquant would be straight lines as in Figure below. This type presumes perfect substitutability of factors of production. I
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