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Isoquant
An isoquant (derived from ''quantity'' and the Greek word ', , meaning "equal"), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. The x and y axis on an isoquant represent two relevant inputs, which are usually a factor of production such as labour, capital, land, or organisation. An isoquant may also be known as an "iso-product curve", or an "equal product curve". Vs. indifference curves While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the isoquant mapping deals with the cost-minimization and profit and output maximisation problem of producers. Indifference curves further differ to isoquants, in that they cannot offer a precise measurement of utility, only how it is relevant to a baseline. Whereas, from an isoquant, the product can be measured accurately in physical units, and it is known by exactly how much iso ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Isocost
In economics, an isocost line shows all combinations of inputs which cost the same total amount.Chiang, Alpha C., ''Fundamental Methods of Mathematical Economics'', third edition, McGraw-Hill, 1984. Although similar to the budget constraint in consumer theory, the use of the isocost line pertains to cost-minimization in production, as opposed to utility-maximization. For the two production factors of production, inputs labour and capital, with fixed unit costs of the inputs, the equation of the isocost line is :rK+wL = C\, where w represents the wage rate of labour, r represents the rental rate of capital, K is the amount of capital used, L is the amount of labour used, and C is the total cost of acquiring those quantities of the two inputs. The absolute value of the slope of the isocost line, with capital plotted vertically and labour plotted horizontally, equals the ratio of unit costs of labour and capital. The slope is: :-w/r. \, The isocost line is combined with the isoqu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Conditional Factor Demands
In economics, a conditional factor demand is the cost-minimizing level of an input (factor of production) such as labor or capital, required to produce a given level of output, for given unit input costs ( wage rate and cost of capital) of the input factors. A conditional factor demand function expresses the conditional factor demand as a function of the output level and the input costs.Varian, Hal., 1992, ''Microeconomic Analysis'' 3rd Ed., W.W. Norton & Company, Inc. New York. The conditional portion of this phrase refers to the fact that this function is conditional on a given level of output, so output is one argument of the function. Typically this concept arises in a long run context in which both labor and capital usage are choosable by the firm, so a single optimization gives rise to conditional factor demands for each of labor and capital. Since the optimal mix of input levels depends on the wage and rental rates, these rates are also arguments of the conditional demand ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Rate Of Technical Substitution
In microeconomic theory, the marginal rate of technical substitution (MRTS)—or technical rate of substitution (TRS)—is the amount by which the quantity of one input has to be reduced (-\Delta x_2) when one extra unit of another input is used (\Delta x_1 = 1), so that output remains constant (y = \bar). MRTS(x_1,x_2) =-\frac = \frac where MP_1 and MP_2 are the marginal products of input 1 and input 2, respectively. Along an isoquant, the MRTS shows the rate at which one input (e.g. capital or labor) may be substituted for another, while maintaining the same level of output. Thus the MRTS is the absolute value of the slope of an isoquant at the point in question. When relative input usages are optimal, the marginal rate of technical substitution is equal to the relative unit costs of the inputs, and the slope of the isoquant at the chosen point equals the slope of the isocost curve (see conditional factor demands). It is the rate at which one input is substituted for anoth ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Expansion Path
In economics, an expansion path (also called a scale lineJain, TR; Khanna OP (2008). ''Economics.'' VK Publications, ) is a path connecting optimal input combinations as the scale of production expands.Hirschey, Mark (2008). ''Managerial economics.'' Cengage Learning, It is often represented as a curve in a graph with quantities of two inputs, typically physical capital and labor, plotted on the axes. A producer seeking to produce a given number of units of a product in the cheapest possible way chooses the point on the expansion path that is also on the isoquant associated with that output level.Prusty, Sadananda (2010). ''Managerial Economics.'' PHI Learning Pvt. Ltd., Economists Alfred Stonier and Douglas Hague defined “expansion path” as "that line which reflects the least–cost method of producing different levels of output, when factor prices remain constant."Stonier, Alfred W.; Hague, Douglas C. (1980). ''A textbook of economic theory, 5th edition.'' Longmans ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Production Function
In economics, a production function gives the technological relation between quantities of physical inputs and quantities of output of goods. The production function is one of the key concepts of mainstream economics, mainstream neoclassical economics, neoclassical theories, used to define marginal product and to distinguish allocative efficiency, a key focus of economics. One important purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution of income to those factors, while abstracting away from the technological problems of achieving technical efficiency, as an engineer or professional manager might understand it. For modelling the case of many outputs and many inputs, researchers often use the so-called Shephard's distance functions or, alternatively, directional distance functions, which are generalizations of the simple production function in economics. In macroeconomics, aggregate produc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Contour Line
A contour line (also isoline, isopleth, isoquant or isarithm) of a Function of several real variables, function of two variables is a curve along which the function has a constant value, so that the curve joins points of equal value. It is a cross-section (geometry)#Definition, plane section of the graph of a function of two variables, three-dimensional graph of the function f(x,y) parallel to the (x,y)-plane. More generally, a contour line for a function of two variables is a curve connecting points where the function has the same particular value. In cartography, a contour line (often just called a "contour") joins points of equal elevation (height) above a given level, such as mean sea level. A contour map is a map illustrated with contour lines, for example a topographic map, which thus shows valleys and hills, and the steepness or gentleness of slopes. The contour interval of a contour map is the difference in elevation between successive contour lines. The gradient of t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Rational Choice Theory
Rational choice modeling refers to the use of decision theory (the theory of rational choice) as a set of guidelines to help understand economic and social behavior. The theory tries to approximate, predict, or mathematically model human behavior by analyzing the behavior of a rational actor facing the same costs and benefits.Gary Browning, Abigail Halcli, Frank Webster (2000). ''Understanding Contemporary Society: Theories of the Present'', London: Sage Publications. Rational choice models are most closely associated with economics, where mathematical analysis of behavior is standard. However, they are widely used throughout the social sciences, and are commonly applied to cognitive science, criminology, political science, and sociology. Overview The basic premise of rational choice theory is that the decisions made by individual actors will collectively produce aggregate social behaviour. The theory also assumes that individuals have preferences out of available choice ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Microeconomics
Microeconomics is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation of scarcity, scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the economy as a whole, which is studied in macroeconomics. One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce Economic efficiency, efficient results. While microeconomics focuses on firms and individuals, macroeconomics focuses on the total of economic activity, dealing with the issues of Economic growth, growth, inflation, and unemployment—and with national policies relati ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
