Lecture 2.2 Flashcards
Output increases as the quantity of variable input
used increases.
Production function with one variable input
Different combinations of inputs may produce exactly the same level of output.
Production function with many variable inputs
What play major role in determining whether and how much substitution would take place
Nature of production technology and the relative prices of
inputs
what do producers do when labor is cheap
employ labor-intensive production technique
what do producers do when labor is scarce and expensive
employ capital-intensive technique of production
locus of points (curve or line) showing various
combinations of inputs that yield the same level of
output.
Isoquant
measures the amount of
one input that must be
given up in return for an
additional unit of
another input with no
loss in output
Marginal Rate of Technical Substitution (MRTS)
– a family of isoquant curves describing the resource combinations required to produce all possible output levels.
Isoquant Map
Patterns of Isoquant Map
Concentric Rings
Asymptotic or Convex
Bowed Outward or Concave
Straight Line
Right Angled
Positively Sloped
Characterized by decreasing MRTS
➢ Increasing difficulty of substitution
➢ More of either input, or both inputs taken in combination, will
always increase output – arrows
➢ Reflects synergistic effect – B vs A or C
Asymptotic or Convex
The center of the series of rings corresponds to the
input combination that results in maximum output.
Concentric Rings
Characterized by increasing MRTS
➢does not reflect synergistic effect
Bowed Outward or Concave
Characterized by constant MRTS
➢One input substitutes for the other in a fixed proportion
Straight Line
Occur when two inputs must be used in fixed proportion with each other
e.g. tractor and driver
Right Angled
Happens when additional amounts of one of the
inputs actually reduce output
Positively Sloped
