Isoquant Curve
Candlefocus EditorMost often, the two inputs depicted in an isoquant curve are capital and labor. This curve is drawn to illustrate the cost- cutting techniques available to businesses, as it allows them to determine the most cost- effective combination of labor and capital for a given level of output. For instance, companies can find more efficient levels of production by substituting more capital for labor, or vice versa.
The isoquant curve also represents the marginal rate of technical substitution (MRTS). This is the rate at which a company can substitute one input for another, while keeping the total quantity of output constant. If a business wants to increase the quantity of output, it will have to move to a higher isoquant, as higher outputs are positioned higher and to the right.
The basic properties of an isoquant curve must be followed for it to remain valid. These properties include the fact that isoquants cannot be tangent with one another and must curve downward, and those representing higher outputs are placed higher and to the right. This is because, as more of one input is replaced by another, only decreasing amounts of the output are created and the MRTS will start to decrease.
In conclusion, an isoquant curve is useful for helping businesses determine the most efficient level of production. By understanding the marginal rate of technical substitution, businesses are able to make adjustments to the level and mix of inputs used to achieve the same level of output. In this way, companies and businesses can optimize their production process, without sacrificing the total quantity of the desired output.