In case the producer's equilibrium shifts to a higher isoquant due to decrease in price of an input, the curve combining the successive equilibrium positions is known as :
Price Factor Curve
Price factor curve — option 2.
What is changing, and that decides everything. The producer’s equilibrium is the point where an isoquant is tangent to an isocost line — the least-cost combination of inputs for that output. When something shifts, the tangency moves, and the curve joining the successive tangencies is named after what caused the shift :
| What changes | What stays constant | Curve joining the new equilibria |
|---|---|---|
| The price of one input | Outlay and the other input’s price | Price factor curve — the isocost line pivots about one axis |
| Total outlay (the budget) | Both input prices | Expansion path — the isocost line shifts outward parallel to itself |
Why this question is a price factor curve. The price of an input falls, so the firm can buy more of that input with the same outlay. The isocost line pivots outward on that input’s axis while its intercept on the other axis is unchanged — it does not shift bodily. Each pivot gives a new tangency on a higher isoquant, and the locus of those tangencies is the price factor curve. It is the producer’s analogue of the consumer’s price consumption curve.
Why the expansion path is the sharpest distractor. It is a real and closely related concept, but it is generated by changing the scale of outlay with relative input prices held constant. Because the price ratio does not change, the isocost lines are all parallel, and the expansion path shows how the firm grows at a fixed input mix. Here the price ratio is precisely what changes, so it cannot be the expansion path.
The other two. The production possibility curve shows the combinations of two outputs obtainable from given resources — a different diagram entirely, in output space rather than input space. “Product line” is a marketing term for a group of related products, and has nothing to do with production theory.
The economics behind the shift. A fall in one input’s price produces two effects, exactly parallel to consumer theory: a substitution effect, as the firm switches toward the now cheaper input, and an output or scale effect, as the same outlay now buys more of everything — which is why equilibrium lands on a higher isoquant.
Hence, the answer is Price Factor Curve.
Similar Questions
Match the production functions List - I with the return to scale List - II.
List - I (Production function) List - II (Return to scale) (a) \( Q = 10\,K^{0.5}L^{0.4}E^{0.15}M^{0.1} \) (i) increasing (b) \( Q = 12\,K^{0.5}L^{0.5} \) (ii) constant (c) \( Q = 100\,K + 15\,L \) (iii) decreasing (d) \( Q = 40\,K^{0.3}L^{0.5} \) Code :
It costs a firm ₹ 90 per unit to produce product A, and ₹ 60 per unit to produce B individually. If the firm can produce both products together at ₹ 160 per unit of product A and B, this exhibits signs of:
Managerial economics is concerned with which combination of the following ?
(a) Investment Analysis and Decisions
(b) Production Behaviour and Cost Analysis
(c) Input Reward Analysis and Decisions
(d) Economic Environment Analysis
Code :
When P0 and P1 and Q0 and Q1 denote before and after change in the price and quantity respectively and in both the situations, total outlay remains the same, which of the following formulae give the similar value of the arc price - elasticity of demand ?
(a) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}+P_{1}}{Q_{0}+Q_{1}}\)
(b) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}}{Q_{1}}\)
(c) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}}{Q_{0}}\)
(d) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{1}}{Q_{1}}\)
(e) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{1}}{Q_{0}}\)
Code :
Which one of the following statements is not correct ?
For the following two statements of Assertion (A) and Reasoning (R), indicate the correct code :
Assertion (A) : Ridge Lines in isoquant map set the limits for the positive productivities of the respective inputs used in the production process.
Reasoning (R) : Isoquants will slope positively if the use of an input is increased beyond the limit set by the ridge lines.
Code :
If a 100% scale-efficient plant has 92% technical efficiency and 88.5% allocative-efficiency, then its overall efficiency will be :
Statement (I): The elasticity of factor substitution is formally defined as the percentage change in the capital-labour ratio divided by the percentage change in the marginal rate of technical substitution.
Statement (II): \(Q = K^{0.5} L^{0.3}\) is a production function where Q = output, K = units of capital and L = units of labour. This production function shows the application of increasing returns to scale.
Codes:
Law of Diminishing Return applies when the gaps among the successive ‘multiple-level of output’ isoquants:
Production function is not based on the assumption of the:
Important Questions from Production Function
For the following two statements of Assertion (A) and Reasoning (R) suggest the correct code:
Assertion (A): Low initial price regarded as the principal means for entering into mass market for some new products.
Reasoning (R): Firms generally enter into production of new products with excess capacity of the plant initially.
Code:
Indicate the correct code from the following types of the long run average cost curves on which the minimum average cost of production in long run can be determined:
(i) Long run average cost curve under normal production function
(ii) Long run average cost curve under linearly homogeneous production function
(iii) Planning curve
(iv) Envelope curve
Choose the correct answer from the code given below :
Which of the following is not an attribute of production function?
Which of the following is an example of non-durable goods?
What is constant along an isoquant?
