FACTOR FACTOR RELATIONSHIP
                     FACTOR FACTOR RELATIONSHIP
INTRODUCTION
Factor-Factor relationship is typically a 
question of identifying the optimum or least-
cost combination of resources to produce a 
certain amount of output. 
Minimization of cost of production depends 
on the cost of inputs, price of outputs and on 
the marginal rate of substitution of factors
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Factor-factor relationship
Factor-factor relationship is concerned with 
the possibilities of substituting one 
input/factor (X1) for another input/factor 
(X2) for producing a given level of output.
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Object of factor-factor relationship
1. Minimization of cost at a given level of 
output.
2. Optimization of output to the fixed 
factors through alternatives resources 
combinations
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Isoquant (Iso-product curve)
It is defined as the locus of various 
combinations of two inputs yielding the same 
level of output.
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Properties of Isoquants
1. Isoquants have a negative slope
2. Isoquants to right indicate higher output level
3. Isoquants do not interest each other
4. Isoquant are convex to origin showing
diminishing MRTS
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Types of Factor-Factor Relationship
(1)Fixed proportion combination of inputs
(2)Constant rate of substitution
(3)Varying rates of substitution
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Fixed proportion combination
These represent such products that can be produced if 
inputs are added in fixed proportion at all levels of 
production. In this case there is no substitution 
between inputs and thus there is strict 
complementarily between the two inputs.
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Constant rate of substitution
Such type of a factor-factor relationship gives linear 
isoquants. The substitution occurs at constant rate i.e. 
the amount of one input replaced by the other input 
does not change as the added input increases
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Varying Rate of substitution
In this there can either be increasing rate or 
decreasing rate of substitution.
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Marginal rate of technical substitution
It is defined as the negative of the slope of the 
isoquant at any point. It is the rate at which two 
factors of production can be exchanged at a particular 
level of output and consequently that of the levels of 
inputs used.
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