Two factors production model and isoquants

Summary

Factors of production

  • Factors of production or inputs are what is used in the production process to produce output
  • Classification of factors of production:
    • Land
    • Labor
    • Capital
    • Raw materials

Two factors production model

  • Two factors of production
  • \(x_1\) : amount of factor 1
  • \(x_2\) : amount of factor 2
  • Infinitely divisible, \(x_1≥0\) , \(x_2≥0\)
  • A production function \(y=f\left( x_1,x_2 \right)\) relating the amount of output \(y\) produced using \(x_1\) and \(x_2\)
  • A single firm that is to decide \(x_1\) and \(x_2\) and thereby \(y\) .
  • A single point in time

Isoquants

  • \(y=f\left( x_1,x_2 \right)\) is a production function
  • A level curve for the production function is called an isoquant .
  • Example: \(y=100\sqrt{x_1x_2}\)