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: \(y=100\sqrt{x_1x_2}\)