isoquant curvea curve that shows the varying combinations of FACTORS OF PRODUCTION such as labour and capital that can be used to produce a given quantity of a product with a given state of technology (where FACTOR INPUTS can be substituted for one another in the production process). See Fig. 104 .
If the isoquant in Fig. 104 reflects 100 units of production per period, then anywhere along that curve it is possible to determine the combination of factors required to produce 100 units. The slope of the isoquant reflects the ‘substitutability’ of one factor for the other in the production process (see MARGINAL RATE OF TECHNICAL SUBSTITUTION).
Isoquants slope downwards to the right because the two inputs can be substituted for one another in the production process. The isoquants are convex to the origin, because although the inputs can be substituted for one another, they are not perfect substitutes, so that the MRTS of X for Y declines as we move down any equal product curve from left to right.
Isoquants bear a marked similarity with INDIFFERENCE CURVES: combinations of two commodities yielding equal satisfaction to the consumer. But while there is no way of measuring satisfaction in physical units (so that we can only talk of ‘higher’ or ‘lower’ indifference curves), we can measure physical output and say by how much production is greater on one equal-product contour than on another.
The ISOCOST LINE shows the combinations of the two FACTOR INPUTS that can be purchased for the same total money outlay. Its slope reflects the relative prices of the two factors of production. Point A, where the isoquant is tangential to the isocost line, shows the least cost combination of inputs for producing 100 units of input. See PROCESS RAY, PRODUCTION FUNCTION, COST FUNCTION.