Description

With this video, you’ll be able to understand what isoquants are, and how they can help analyse production. You’ll learn the main characteristics of different types of isoquants, as well as what the marginal rate of technical substitution is.

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An isoquant shows the different combinations of K and L that produce a certain amount of a good or service. Graphically, the shape of an isoquant will depend on the type of good or service we are looking at. The shape of isoquants is also in close relation with the terms marginal rate of technical substitution and returns to scale.

It is also worth discussing isoclines, which are lines that ‘join up’ the different production regions. Having defined and decided the optimal levels of K and L we need to produce the different quantities, the line that passes through these optimal levels is an isocline. In other words, it is the line that joins points where the marginal rate of technical substitution of each isoquant is constant:

Learn more by reading the dictionary entry.

Related videos:

• Production function
• Marginal rate of technical substitution
• Isocost

Related articles:

• Production function
• Marginal rate of technical substitution
• Isocost

Description

This video explains how the production function can be built in order to analyse it. We start by explaining the main characteristics of production functions, then show its relationship with returns to scale and, finally, introduce the concept of isoquants.

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A production function shows how much can be produced with a certain set of resources. Generally, when looking at production, we assume there are two factors involved in production: capital (K) and labour (L), as this allows us graphical representations of isoquants. However, any analysis made with 2 factors can mathematically be extended to n factors. Therefore, a production function can be expressed as q = f(K,L), which simply means that q (quantity) is a function of the amount of capital and labour invested.

It is well worth introducing here another concept: marginal productivity, which is how much more quantity we could produce by adding one unit more of a factor. As is logical, this will depend on how we are employing the factors we already have. The marginal product is the partial derivative of the production function with respect to the factor we are examining.

Marginal productivity decreases with each additional unit. At a certain point, the more workers we have, for example, the more each additional worker will be redundant if we do not invest in other necessary factors. This is the same as saying that the second derivative is negative. At that point, production is as efficient as possible.

Learn more by reading the dictionary entry.

Related videos:

• Isoquants
• Marginal rate of technical substitution
• Production possibility frontier

Related articles:

• Returns to scale
• Isoquants
• Marginal rate of technical substitution