• ISOQUANT: An isoquant shows different
combinations of two factors of production L
& K that yield the same amount of output
Q.
• Isoquants are level curves of the production
function Q = F(L, K) much like indifference
curves are level curves of the utility
function.
Properties of Isoquants:
(Compare and Contrast with Indifference Curves)
• They are negatively sloped.
• They are convex to the origin (Diminishing
MRTS)
• They do not cross.
• Higher curves (to the NE) correspond to
greater levels of output.
• Are Positive Monotonic Transforms
meaningful?
• Marginal rate of Technical Substitution:
MRTS L, K: The MRTS L, K is defined as the
amount of K one must give up to gain one unit
of L such that total output remains unchanged.
– The MRTS at a given combination of L & K is
just the slope of the isoquant at that point.
MRTS L, K
K
K

L
L
• Returns to Scale: rate at which output
changes when all inputs are scaled up or
down.
• Increasing Returns to Scale: When all inputs
are scaled up by X% output increases more
than proportionately (more than X%)
• Decreasing returns to Scale: When all inputs
are scaled up by X% output increases less
than proportionately (less than X%)
• Homogeneity: A function Q = F(K, L) is
said to be homogeneous of degree K if
scaling all inputs up by some factor Alpha
results in output going up by alpha raised to
the Kth power.