Isoquant Curve

What is the 'Isoquant Curve'

The isoquant curve is a graph, used in the study of microeconomics, that charts all inputs that produce a specified level of output. This graph is used as a metric for the influence that the inputs have on the level of output or production that can be obtained. The isoquant curve assists firms in making adjustments to inputs in order to maximize outputs, and thus profits.

Isoquant Curve

BREAKING DOWN 'Isoquant Curve'

The term "isoquant," broken down in Latin, means “equal quantity,” with “iso” meaning equal and “quant” meaning quantity. The isoquant curve is a company’s counterpart to the consumer’s indifference curve. Essentially, the curve represents a consistent amount of output. The isoquant is known, alternatively, as an equal product curve or a production indifference curve. It may also be called an iso-product curve.

Isoquant Curve vs Indifference Curve

The isoquant curve is a contoured line that is drawn through points that produce the same quantity of output, while the quantities of inputs – usually two or more – are changed. The mapping of the isoquant curve addresses cost minimization problems for producers. The indifference curve, on the other hand, helps to map out the utility maximization problem that consumers face.

The Properties of an Isoquant Curve

Property 1: An isoquant curve slopes downward, or is negatively sloped. This means that the same level of production only occurs when increasing units of input are offset with lesser units of another input factor. This property falls in line with the principal of Marginal Rate of Technical Substitution (MRTS). As an example, the same level of output could be achieved by a company when capital inputs increase, but labor inputs decrease.

Property 2: An isoquant curve, because of the MRTS effect, is convex to its origin. This indicates that factors of production may be substituted with one another. The increase in one factor, however, must still be used in conjunction with the decrease of another input factor.

Property 3: Isoquant curves cannot be tangent or intersect one another. Curves that intersect are incorrect and produce results that are invalid, as a common factor combination on each of the curves will reveal the same level of output, which is not possible.

Property 4: Isoquant curves in the upper portions of the chart yield higher outputs. This is because, at a higher curve, factors of production are being more heavily employed. Either more capital or more labor input factors result in a greater level of production.

Property 5: An isoquant curve should not touch the X or Y axis on the graph. If it does, the rate of technical substitution is void, as it will indicate that one factor is responsible for producing the given level of output without the involvement of any other input factors.

Property 6: Isoquant curves do not have to be parallel to one another; the rate of technical substitution between factors may have variations.

Property 7: Isoquant curves are oval shaped, allowing firms to determine the most efficient factors of production.