the isoquant so that it is a positive number. The table in Figure 8A-1
shows the calculation of some marginal rates of substitution between
various points on an isoquant. [ 19 ]
The marginal rate of substitution is related to the marginal products of the
factors of production. To see how, consider an example. Suppose at the
present level of inputs of labour and capital, the marginal product of
labour is 2 units of output and the marginal product of capital is 1 unit of
output. If the firm reduces its use of capital and increases its use of labour
to keep output constant, it needs to add only one-half unit of labour for 1
unit of capital given up. If, at another point on the isoquant with more
labour and less capital, the marginal products are 2 for capital and 1 for
labour, the firm will have to add 2 units of labour for every unit of capital
it gives up. The general proposition is this:
The marginal rate of (technical) substitution between two factors of production is equal to the
ratio of their marginal products.Economists assume that isoquants satisfy two important conditions: They
are downward sloping, and they are convex when viewed from the origin.
What is the economic meaning of these conditions?
The downward slope indicates that each factor input has a positive
marginal product. If the input of one factor is reduced and that of the
other is held constant, output will be reduced. Thus, if one input is
decreased, production can be held constant only if the other factor input
is increased.