y = f(x)

Suppose that two inputs called x1 and x2 are

Introduction
allowed to vary. The resulting production
function is y = f(x1, x2)
If there are more than two, or n different
inputs, the production function might be
written as y = f(x1, x2, x3, ..., xn)
The inputs x3, ..., xn will be treated as fixed
and given, with only the first two inputs
allowed to vary.
The production function from which these
data were generated is y = f(x1, x2, x3)
Where;
y = corn yield in bushels per acre
x1 = potash in pounds per acre
x2 = phosphate in pounds per acre
x3 = nitrogen in pounds per acre assumed
constant at 180
Refer Table 5.1 Text Book
Potash is not very productive without an
adequate availability of phosphate.
The maximum yield with no phosphate is 99
bushels per acre and that occurs at
comparatively low levels of potash application
of 20 to 30 pounds per acre.
The production function for potash in the
absence of any phosphate is actually
decreasing at potash application rates of over
30 pounds per acre. In the absence of
phosphate fertilizer, stage III for potash begins
quite early.
Phosphate in the absence of potash is more
productive, but only slightly so. The maximum
yield without any potash is 104 bushels per
acre at between 40 and 50 pounds of
phosphate.
Stage III for phosphate begins at beyond 50
pounds per acre if no potash is applied.
These relationships are based on a basic
agronomic or biological characteristic of crops.
A crop would not be expected to produce high
yields if an ample supply of all nutrients were
not available.
Crops to grow; some of both nutrients must
be present, and the highest yields are
obtained when both nutrients are in ample
supply.
This concept in economics is closely linked to
Von Liebig's "Law of the Minimum," which
states that plant growth is constrained by the
most limiting nutrient.
Yields using 70 pounds of each are greater
than when 80 pounds of each are used.
What would happen, if phosphate were very
expensive and potash were very cheap?
Perhaps the 1:1 ratio should be changed to 1
unit of phosphate and 2 units of potash to
represent a unit of fertilizer.
Refer to Figure 5.1 & 5.2 Text Book
Isoquants
A line can be drawn that connects all points
on Table 5.1 representing the same yield.
This line is called an isoquant. The prefix iso
comes from the Greek isos meaning equal.
Quant is short for quantity. An isoquant is
literally a line representing equal quantities.
Every point on the line represents the same
yield or output level, but each point on the
line also represents a different combination of
the two inputs. As one moves along an
isoquant, the proportions of the two inputs
vary, but output (yield) remains constant.
Marginal Rate of Substitution
(MRS)
The slope of an isoquant-the marginal rate of
substitution (MRS) or rate of technical substitution
(RTS) or the marginal rate of technical substitution
(MRTS). We are going to use the terminology MRS.
MRS- is a measurement of how well one input
substitutes for another as one moves along a
given isoquant.
Input x1 is increasing and x2 is decreasing. In this
example, x1 is the replacing input and x2 is the
input being replaced, moving down and to the
right along the isoquant. Refer Figure 5.3 Text Book
The MRS might also measure the inverse slope
of the isoquant. Suppose that the use of x 2 is
being increased, while the use of x1 is decreased.
The terminology MRSx2x1 is used to describe the
inverse slope of the isoquant. In this example, x2
is the replacing input, and x1 is
the input being replaced, as one moves up and
to the left along the isoquant. The MRSx2x1 is
equal to 1/MRSx1x2.
L, H & J Isoquants
MRSx2x1 = dx1/dx2 = MPPx2/MPPx1