Question

Why do isoquants shift inward towards the origin in response to a technical change?
Let's assume there are only two inputs capital (K) and labor (L) in a production function. Holding K constant, if there is a technical change why is the isoquant shifting towards the origin from, let's say, q0 to q'0? I realize how in shifting towards the origin it now requires less labor for the same capital but isn't its output also decreasing? I thought a technical change causes one input to go down keeping the output the same.

Answer 1

Technical change refers to the use of more efficient methods of production. It can be depicted by a downward shift of the production isoquant . A downward shift shows that the same amount of output can be produced by less factor inputs.

Here, capital is held constant. A shift in the isoquant to the origin now illustrates a labour saving technical progress. This implies that the amount of labour used is reduced.

According to the characteristics of the isoquants , the farther the isoquant from the origin , the greater the level of output it represents. But, this is the case when there is no technical change. Now, if there is a technical change, the isoquant will shift towards the origin indicating the technological progress. This means the same level of output can be produced with less inputs.