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How to draw isoquant curves for a certain quantity? What does "increasing return to scale" and "decreasing returns to scale" mean?
How to draw isoquant curves for a certain quantity? What does "increasing return to scale" and "decreasing returns to scale" mean? What is "capital input" if all I have is quantity of labor and total quqntity of product?Typically, a production isoquant is drawn on a graph with labor on one axis, capital on the other. Because of decreasing returns to scale, isoquants have a concave shape (bow pointing towards the (0,0) point). The isoquant represents the mix of capital and labor that will produce a given, fixed level of output. (So, increasing labor and holding capital constant would move you to a higher isoquant. Substituting labor for capital could move you along the isoquant curve). Increasing returns to scale: increasing an input by x% creates MORE than an x% increase in output. For example, two construction workers, working together, can build more than twice as fast as one worker working alone). Decreasing returns to scale: increasing an input by x% creates LESS than an x% increase in output. Im not sure how to answer your last question. If your only input is labor, then your optimal isoquant will be a "corner" solution -- where the isoquant crosses the labor axis. Ergo, capital input is zero. Or do you have a problem where you know the amount of labor and you know total output and you are asked to determine the efficient amount of capital used?Hi! Very nice site! Thanks you very much! MD3zIBpWMOlGM
