Isoquant

Here fully efficient firm is presented to operate at SS' isoquant.

* SS' represents the unit isoquant of the fully efficient firm;

This narrative is illustrated in Figure 8, which sketches isoquant and isocost curves for the tradable and nontradable firms.

A virtual isocost line FG is shown, parallel to line AB', to highlight the influence of the actual income change and to make the original isoquant [Q.sub.0] tangent to c.

The production function can be defined in terms of the efficient subset as an isoquant (Y) = {X: X [memebr of] L(Y)}.

C, of course, is an optimal solution, as the isocost curve is tangential to a corresponding isoquant. Only in the case of the strict binding minimum wage rate [??] (this wage rate is considerably higher than the marginal costs of labour and it causes labour demand to be at the shorter side of the market), a higher capital intensity will emerge in D in comparison to A.

The inner boundary of this set is a piece-wise linear isoquant which is determined by the observed data point (i.e.

"DEA presumes that linear substitution is possible between observed input combinations on an isoquant (which is generated from the observations in piecewise linear forms).

Because function of production is a physical relationship between producing factor and the production, there is the frontier lying on isoquant line.

Figure 1, with isoquant and isocost, implies that empirical economists must accurately specify a win production or win cost function to estimate the efficiency of sports teams rather than specify an arbitrary win regression equation.