Isoquant Map and Economic Region of Production

The isoquant map is a set of isoquants like IQ1, IQ2, IQ3 and IQ4 in the following figure, where each isoquant shows different outputs produced by different combinations of labour and capital.

It is important to note here that neither an isoquant nor an isoquant map is technically efficient because the MRTS on an isoquant decreases and reaches to zero. This means that zero MRTS marks a limit to which one input can be substituted for another, and it also determines the minimum quantity of input required for the production of an output.

Beyond this point, it becomes important to employ both inputs for the production of the output (as the substitution between inputs does not take place anymore beyond this point). Such a point, where MRTS is equal to zero, can be determined by drawing a tangent on the Isoquant that is parallel to both axes. Here in the above diagram, it is shown by the dashed lines.

Hence, points a, b, c, d, e, f, g, and h are the points where MRTS = 0 and one input cannot be substituted for another anymore, i.e. the minimum amount of one input required for the production of the other.

When we join points a, b, c, and d, we get an upper ridge line, OM, and when we join points e, f, g, and h, then we get a lower ridge line, ON, as shown above.

The upper ridge lines show that the marginal productivity of capital is zero on OM, whereas the lower ridge line shows that the marginal productivity of labour is zero on ON. The area outside these ridge lines is the technically inefficient area where production cannot take place.

Hence, the area which is technically efficient and where the production can take place is the area between the ridges lines, which is also known as the economic region. Thus, any production technique or any combination of labour and capital within this economic region is technically efficient for producing output.

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