The slope of the isoquant tells us the rate at which capital and labor can be substituted for one another while maintaining a fixed level of output.

    At point A the isoquant has a slope of -3. At this point the firm is already using very little labor and a considerable amount of capital. If labor were reduced by one unit capital would have to be increased by 3. At point B the slope is -1 meaning that one unit of capital may be substituted for one unit of labor and vice versa to maintain output. At point C where the slope is -1/2 two units of labor are required to substitute for a single unit of capital in order to maintain output.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved