ISOCOSTS AND ISOQUANTS PDF

In economics an isocost line shows all combinations of inputs which cost the same total amount given total cost of inputs. A line joining tangency points of isoquants and isocosts (with input prices held constant) is called the expansion path. Isoquants: An isoquant (equal quantity) is a curve that shows the combinations of certain inputs such as Labor (L) and Capital (K) that will produce a certain. Class 3 isocosts & isoquants. 1. ISOQUANTS Equal Quantity of Production; 2. MEANING OF ISOQUANTS • Isoquants are the curves, which.

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From the theory of production isocoshs only one or two inputs are variable, we proceed to examine cases in which all inputs are variable. This page was last modified on 16 Aprilat Retrieved from ” http: We may now speak a few words about the slopes of isoquant and an isocost line.

From the isoquant map, we can generate the total product curve of each input by holding the quantity of the other input constant.

For the two production inputs labour and capital, with fixed unit costs of the inputs, the equation of the isocost line is. All these and other various combinations are shown in Fig. We can see that the shape of isoquant plays an important a role in the production theory as the shape of indifference curve in the consumption theory.

The long-run production function of a firm involving the usage of two factors, say, capital and labour is represented by equal-product curve or isoquant. The marginal rate of technical substitution of labour for capital must be diminishing at the point of equilibrium.

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Isocost-isoquant analysis

The absolute value of the slope of iaocosts isocost line, with capital plotted vertically and labour plotted horizontally, equals the ratio of unit costs of labour and capital. Iso quant is sloping downwardso when inputs are used in fixed proportion.

When the amount of money spent by the firm changes, the isocost line may shift but its slope remains the same. An isocost line shows the alternative quantities of two factors viz. In economics an isocost line shows all combinations of inputs which cost the same total amount.

The iso cost line will shift to the right when money spent on factors increases or firm could buy more as the factor prices are given. It looks for that factor combination that is on the lowest of the isocost lines. An isocost line is a locus of points showing the alternative combinations of factors that can be purchased with a fixed amount of money.

Isoquant and Isocost Lines (With Diagram) | Economics

Here, the firm seeks to minimise its cost of producing a given level of output. We know that the MRTS is equal to the ratio of the annd products of the two inputs. The iso quant closer to the origin indicates a lower level of output.

With right angled or L shaped, isoquantinputs can only be combined in fixed proportion in production. If the y -isoquant is smooth and convex to the origin and the cost-minimizing bundle involves a positive amount of each input, then at a cost-minimizing input bundle an isocost line is tangent to the y -isoquant. Put differently, a cost-minimizing input bundle must satisfy two conditions:.

Iso quant is also known as Production indifference curve. To find the least-cost combination of factors for fixed level of output we combine Fig. The producer must have sufficient capacity to buy necessary factor inputs to be able to reach its desired production level. This page has been accessedtimes.

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Iso quant map shows all the possible combinations of labour and capital that can produce different levels of output. Views Read Edit View history.

The focus of this chapter is on the firm. But, the desire to produce a commodity is not enough. Therefore, the only way to maximise profit is to minimise cost. It is a graphical representation of various combinations of inputs say Labour L and capital K which give an equal level of output per unit of time.

Isoquant and Isocost Lines (With Diagram) | Economics

These lines are straight lines because factor prices are constant and they have a negative slope equal to the factor-price ratio, i. Equivalently, it gives the maximum level of output that can be produced for a given total cost of inputs. If the price of labour falls the firm could buy more of labour and the line will shift away from the origin.

To construct isocost lines we need information about the market prices of the two factors. This indicates that one factor can be used a little more and other factor a little less, without changing the level of output. The choice is based on the prices of factors of production at a particular time. The essential condition is that the slope of the isocost line must equal the slope of the isoquant.