20October2014

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Producer’s Equilibrium

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1.  Definition

ISO-Quant is defined as a curve which shows the various combinations of two inputs say X (labor) and Y (capital) giving the same level of output.

2.  Explanation

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The production indifference curve or iso-quants are explained with the help of a schedule and a curve below:

Combination

Factor X

Factor Y

Total output

A

1

14

100 Meters cloth

B

2

10

100 Meters cloth

C

3

7

100 Meters cloth

D

4

5

100 Meters cloth

E

5

4

100 Meters cloth

It is presumed that producer employees two factors of production X and Y for producing a commodity. There are five combinations which produce the same output.

Combination A consists one unit of Factor X and 14 units of Factor Y to produce 100 meters of cloth. Similarly combination B having two units of factor X and 10 units of Factor Y, similarly in combination C, D and E the units of factor X are increasing, while the units of Factor Y are decreasing, but output is the same in all above combinations. Now in above combinations producer is indifferent as to which combination of inputs he uses for producing an equal quantity of output.

Importance of Computers

In the figure above lP curve represents the various combinations of two inputs which are capable of producing 100 meters of cloth.

3.  ISO-Quant Map

Isoquant map represents which can be produced altogether different combinations of two factors drawn.

Importance of Computers

In figure, IQ, IQ1 show equal product curves showing different amount of output. The IQ yields 100 units of output, IQq 200 units and IQ2 300 units of product, which can be produced altogether different combination of the two factors X and Y.

4. ISO-COST curves

The isocost curves are also called outlay lines, price lines, etc. Each price line represents the different combinations of two inputs that a firm can buy for a given sum of money at given price of each output.

5. Definition

An isocost line refers to the different combinations of two factors that a firm purchases with a given amount of money.

Importance of Computers

In the figure LM line represents the first isocost line of a firm having the purchasing power of RS: 200. It means the producer can buy any combinations of two inputs ranging in Rs 200. In 2nd line he can buy more and in the 3rd he can buy more than that of the second isocost line.

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