An isoquant can be defined as a locus of combinations of factors of production, which yield the same level of output, assuming efficiency in production.
Let us explain the concept of isoquant with the help of a diagram. Suppose, only labour and capital can produce product X. Beside labour and capital, the other factors of production may also be required, but for the sake of simplicity, let us confine our discussion only to these two factor framework. In figure 8.1 three points A, B and C are shown.
Assume that with the help of fully automatic machines 10 units of product X can be produced with 7 units of capital along with 2 units of labour (point A). The same quantity of the same product can also be produced by a manual machine (which is less expensive) where, as compared to the previous process of production, the use of capital would be lower but employment of labour has to be increased.
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Suppose, with this manual machine, 2 units of capital can be used with 6 units of labour for producing 10 units of product X (point C). Now, if a semi-automatic machine is used, requirement of capital will be lower than the first machine but higher than the second machine. Let us assume that 4 units of capital are used in a semi – automatic production system (7 fully automatic < 4 semi-automatic < 2 fully manual).
All the points A, B and C denote 10 units of product X, though there are differences in combination of inputs. The line joining these three points representing equal quantity of output is called isoquant.
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It is to be noted that efficiency in production is assumed while defining the concept of isoquant. If this condition is not included, different processes of production cannot be compared, because if the production processes are not efficient, output may also fall despite an increase in quantities of inputs.