Difference between Iso-quant Curve and Indifference curves Bachelor of Management Studies Unofficial Portal

One of the properties of the indifference curve is that it is strictly convex and never concave. When the consumer repeatedly substitutes or consumes one good over another, the marginal rate of substitution diminishes. These combinations provide the same level of satisfaction difference between indifference curve and isoquant and utility to the consumer. Since the consumer gets an equal preference for all bundles of goods, they are indifferent about any two combinations on the curve. The iso-price line is much like the value or budget line of the indifference curve evaluation.

It attempts to analyze consumer behavior, and map out consumer demand. Labor is often placed along the X-axis of the isoquant graph, and capital along the Y-axis. An isoquant is analogous to an indifference curve in more than one way. A nonconvex isoquant is prone to produce large and discontinuous changes in the price minimizing input mix in response to price changes. Consider for example the case where the isoquant is globally nonconvex, and the isocost curve is linear.

This tendency of diminishing marginal substitutability of factors is apparent from Table 2 and Figure 11. Curves OA and OB are the ridge lines and in between them only feasible units of capital and labour can be employed to produce 100, 200, 300 and 400 units of the product. They are just like contour lines which show the different levels of output. A higher iso-product curve represents a higher level of output. 2 we have family iso-product curves, each representing a particular level of output.

A; with a given level of production Q3, input X can be replaced by input Y at an unchanging rate. The perfect substitute inputs do not experience decreasing marginal rates of return when they are substituted for each other in the production function. The distance EF is less than FG and FG is less than GH. The isoquant curves for 100, 200, 300 and 400 units of output shows that output is increasing by a constant amount by 100 units.

When it occurs, it is known as the marginal rate of substitution . It shows the consumer’s preference for one good over another only if it is equally satisfying. Isoquants are downward-sloping and convex like indifference curves.

What is isoquant and types of isoquant?

Since it is an extension of Indifference curve analysis from the theory of consumption to the theory of production. This is because of the operation of the principle of diminishing marginal rate of technical substitution. The MRTS diminishes because the two factors are not perfect substitutes.

• Since the consumer gets an equal preference for all bundles of goods, they are indifferent about any two combinations on the curve.
• Secondly, in the case of indifference curves, we can explain about higher or lower levels of utility.
• This tendency of diminishing marginal substitutability of factors is apparent from Table 2 and Figure 11.
• It is also known as optimum combination of the factors.
• If a consumer purchases two goods, the budget limitation can be displayed with the help of a budget line on a graph.
• Thus, an isoquant helps a enterprise to decide on the best cost-efficient combination of things of production.

They slope downward because MTRS of labour for capital diminishes. When we increase labour, we have to decrease capital to produce a given level of output. Let us suppose that there are two factor inputs—labour and capital. An Iso-product schedule shows the different combination of these two inputs that yield the same level of output as shown in table 1. Marginal Rate Of SubstitutionThe marginal rate of substitution is the rate at which some units of an item can be replaced by another while providing the same level of satisfaction to the consumer. An indifference curve is a downward sloping convex line connecting the quantity of one good consumed with the amount of another good consumed.

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At this point, the slope of the iso-cost line is equal to the iso-product curve. The slope of the iso- product curve represents MRTS of labour for capital. The slope of the iso-cost line represents the price ratio of the two factors. The points A, B, C and D convey the different combinations of two factors, capital and labour which can be purchased by spending Rs. 100.

An isocost show all combinations of factors that cost the same amount. Under the assumption of declining marginal rate of technical substitution, and hence a positive and finite elasticity of substitution, the isoquant is convex to the origin. A locally nonconvex isoquant can occur if there are sufficiently strong returns to scale in one of the inputs. In this case, there is a negative elasticity of substitution – as the ratio of input A to input B increases, the marginal product of A relative to B increases rather than decreases. If the two inputs are perfect substitutes, the resulting isoquant map generated is represented in fig.

Each indifference curve represents particular level of satisfaction which cannot be quantified. A higher indifference curve represents a higher level of satisfaction but we cannot say by how much the satisfaction is more or less. An isoquant shows equal level of product while an indifference curve shows equal level of satisfaction at all points. Firstly, an indifference curve represents satisfaction which cannot be measured in physical units. In the case of an isoquant the product can be measured in physical units.

What Is an Indifference Curve?

He is also satisfied with 2 units of cloth and 4 units of books. Jack is satisfied with 1 unit of cloth and 8 units of books. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice. Opportunity CostsThe difference between the chosen plan of action and the next best plan is known as the opportunity cost. It’s essentially the cost of the next best alternative that has been forgiven. It is used in economics to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.

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OC is 2/3 of OD which means that the price of a unit of labour is 1/2 times less than that of a unit of capital. 7, units of labour have been taken on OX axis while on OY, units of capital. IQ1 represents an output level of 100 units whereas IQ2 represents 200 units of output. Equation states that for an increase in the use of labour, fewer units of capital will be used. In other words, a declining MRTS refers to the falling marginal product of labour in relation to capital. To put it differently, as more units of labour are used, and as certain units of capital are given up, the marginal productivity of labour in relation to capital will decline.

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Therefore as seen in figure 9, IQ and IQ1 cannot be isoquants. A given quantity of output may be produced with different combinations of factors. Iso-quant curves are also known as Equal-product or Iso-product or Production Indifference curves.

An isoquant curve is the representation of a set of locus of various combinations of two inputs which yield the same degree of output. It is also known as or equal product curve or producer’s indifference curve. The MRTS reflects the give-and-take between elements, such as capital and labor, that permit a agency to maintain a constant output.

Firstly, in the indifference curve technique, utility cannot be measured at all. In the case of an isoquant, the product can be exactly measured in physical units. Secondly, in the case of indifference curves, we can explain about higher or lower levels of utility.

3.Isoquant curve show constant levels of output which can be measured. C) Isoquant 1 is much more input-Y intensive than isoquant 2. At point of tangency i.e., iso-quant curve must be convex to the origin or MRTSLk must be falling. Thus it may be observed that due to falling MRTS, the isoquant is always convex to the origin. Where ∆K is the change in capital and AL is the change in labour. Technique of production is constant or is known before hand.

Besides giving the explanation of What is the difference between indifference curve and isoquant curve ? Has been provided alongside types of What is the difference between indifference curve and isoquant curve ? Theory, EduRev gives you an ample number of questions to practice What is the difference between indifference curve and isoquant curve ?

A line joining tangency points of isoquants and isocosts is called the expansion path. An isoquants shows all those combinations of factors which produce same level of output. In Figure 1 output on the curve 1Q1 is double, and on the IQ2 treble than on the curve IQ. Lastly, since satisfaction on indifference curves cannot be measured in physical units, they are given arbitrary numbers 1, 2, 3, 4, etc.

Slope of an iso-quant curve is influenced by the technical possibility of substitution between factors of production. It depends on marginal rate of technical substitution whereas slope of an indifference curve depends on marginal rate of substitution between two commodities consumed by the consumer. From the above schedule iso-product curve can be drawn with the help of a diagram. Equal product curve represents all those combinations of two inputs which are capable of producing the same level of output.

An indifference curve denotes a set of different combinations of two commodities or goods, providing the same level of satisfaction to the consumer. Since all consumption bundles give an equal amount of utility, the consumer is indifferent to all combinations. An indifference curve is a graphical representation of various combinations or consumption bundles of two commodities. It provides equivalent satisfaction and utility levels for the consumer. The slope of an isoquant at any point is the slope of a tangent line at that point. The slope is called the marginal rate of technical substitution .