What Are Iso-product Curves or Equal Product Curves
What are Iso-product curves or Equal product curves?
It is the business of a manufacturer to hit on the cheapest or the lowest cost method to produce a given output out of the several alternative methods open to him. There are a large number of combinations of inputs which can produce a given output and the producer has to select the most economical combination out of these. This will be an equilibrium position for him.
In recent years, a new technique has been developed to study the theory of production and to show the equilibrium of a producer regarding combination of factors. This technique is of Iso-product a curve which is a parallel concept to the indifference curves in the theory of consumption.
Just as an indifference curve represents various combinations of two goods which give a consumer equal amount of satisfaction, an iso-product curve shows all possible combinations of two inputs physically capable of producing a given level of output. Since an iso-product curve represents those combinations which will result in the production of an equal quantity of output, the producer would be indifferent between them. Iso product curves are, therefore, called Product-indifference Curves. They are also known as Isoquants or Equal-product Curves. Any point on the Isoquant is a recipe for the same output as any other point on the same curve.
Difference between Indifference Curve and Iso-product Curve
Though iso-product curves are similar to the indifference curves of the theory of demand, one important difference between them is worth noting. While an indifference curve shows all those combinations of two goods which provide equal satisfaction to a consumer, it does not tell us exactly how much satisfaction is derived by the consumer from those combinations. This is so because utility or satisfaction being a mental phenomenon cannot be measured in absolute terms. Thus, there are no physical units in which satisfaction can be measured. That is why we label indifference curves as I, II, III, etc., showing that higher indifference curves, provide a greater level of satisfaction, but we cannot say how much greater. On the other hand, we can label iso-product curves in the physical units of the output produced without any difficulty. Production of a good being a physical phenomenon lends itself to absolute measurement in physical units.
Properties of Equal Product Curves
Properties of iso-product curves are the same as those of indifference curves. Their properties can also be proved in the same manner as in the case of indifference curves. The following are the important properties of iso-product curves:
(i)Sloping Downwards- Iso-product curves slope downwards from left to right. This is so because if the quantity of a factor X is increased, the quantity of
factor Y must be decreased so as to maintain the same level of output.
(ii)Convexity- Iso-product curves are convex to the origin. This is due to the fact that marginal rate of technical substitution falls as more and more of X
is substituted for Y. Iso-product curves being concave means that the marginal rate of technical substitution of X for Y increases as more and more of X is
substituted for Y. But increasing marginal rate of technical substitution is not realistic. As explained above, owing to the operation of the law of diminishing
returns, the marginal rate of technical substitution falls as more and more substitution takes place.
Thus, it is the diminishing marginal rate of substitution which is a realistic phenomenon and due to which the iso-product curves are convex to the origin.
(iii)Non-intersecting-Two iso-product curves cannot cut each other.