When the isoquant is plotted, it is downward sloping and convex. The
downward slope reflects the requirement of technical efficiency: Keeping
the level of output constant, a reduction in the use of one factor requires
an increase in the use of the other factor. The convex shape of the
isoquant reflects a diminishing marginal rate of (technical) substitution.
This curve is called an isoquant. It shows the whole set of technically
efficient factor combinations for producing a given level of output. This is
an example of graphing a relationship among three variables in two
dimensions. It is analogous to the contour line on a map, which shows all
points of equal altitude, and to an indifference curve (discussed in the
Appendix to Chapter 6 ), which shows all combinations of products that
yield the consumer equal utility.
As we move from one point on an isoquant to another, we are substituting
one factor for another while holding output constant. If we move from point
b to point c, we are substituting 1 unit of labour for 3 units of capital.
The marginal rate of substitution measures the rate at which one factor is substituted for
another with output being held constant.Sometimes the term marginal rate of technical substitution is used to
distinguish this concept from the analogous one for consumer theory (the
marginal rate of substitution) that we examined in Chapter 6.
Graphically, the marginal rate of substitution is measured by the slope of
the isoquant at a particular point. We adopt the standard practice of
defining the marginal rate of substitution as the negative of the slope of