The isoquant implies the curve showing the options of various combinations of factors of production used for release of a certain quantity of products. As a rule, isoquants are called lines of equal production or curves of equal goods.
Instruction
1. Begin with creation of the usual schedule. The isoquant has to reflect all combinations of two major factors of production activity (capital and work) at which production remains invariable. Put down the release of goods corresponding to it near an isoquant. Thus, the release of q1 can be reached when using work L1 and the capital of K1 or with use of work L2 and the capital of K2. At the same time it is possible also other compliance of volumes of the capital and work minimum necessary for achievement of similar release.
2. Consider that all combinations of resources which correspond to this isoquant reflect technologically effective ways of production activity. The technique of production And (for example) is technically more effective in comparison with way B in case it demands application at least of one any concrete resource in smaller volume, and all others in identical quantity in comparison with method B. Therefore way B will be technically inefficient in comparison with And. In turn, technically inefficient methods of production activity are not used by rational businessmen and are not related to production function.
3. Note the piece allocated with a dotted line which will reflect all technically inefficient methods of production on the received schedule. In particular, in comparison with way A method B for ensuring some identical production (q1), will demand the same number of capital investments, but the greatest number of work. Respectively therefore way B will not be rational, and it is the best of all not to take it into consideration.
4. Define limit rate of value of technical replacement on the basis of the constructed isoquant. In turn, the size of limit rate of technical replacement with a factor of the X factor of Y (MRTSyx) – quantity of a factor of Y (for example, the capital) which it is possible to refuse at increase in value of a factor of X (for example, work) on 1 unit that the release of goods did not change.