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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Iso cost line shows various combinations of labour and capital that the firm can buy for a given factor prices. All the isocost lines in the diagram have the same slope because the relative prices of labour and capital are the same.

Isoquant and Isocost Lines (With Diagram) | Economics

Cost minimisation occurs when an isoquant is just tangent to but does not cross an isocost line. It is also known as the equal product curve. Table 1 illustrates, by using hypothetical numbers, seven alternative methods of producing six units of output. In both cases the factors will have to be employed in optimal combination at which the cost of production will be minimum. Production theory is extended to deal with two variable inputs by the introduction of isoquants.

When this happens the ratio of the prices of factors is the same as the ratio of their marginal products. Views Read Edit View history. Economic region of Production:. In case of two variable factors, labour and capital, an isoquant appears as a curve on a graph the axes of which measure quantities of the two factors.

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A set of isocost lines can be drawn for different levels of factor prices, or different sums of money.

Community Community portal Web chat Mailing list. Isoquants are typically drawn as being convex to the origin because of the assumed substitutability of inputs. If the isoquants are smooth and convex to isocosfs origin and the cost-minimizing input bundle involves a positive amount of each input, then this bundle satisfies the following two conditions:.

ISO QUANT AND ISOCOST – WikiEducator

The essential condition is that the slope of the isocost line must equal the slope of the isoquant. With right angled or L shaped, isoquantinputs can only be combined in fixed proportion in production.

In this equationPL is the price of labour and Pk is the price of capital.

These alternatives are shown also in Fig. The firm can achieve maximum profits by choosing that combination of factors which will cost it the least. This page was last edited on 20 Novemberat Therefore, the only way to maximise profit is to minimise cost. An isoquant shows the various combination of two inputs that can be used to produce a isocostss level of output.

And isocostx must be convex isocowts the origin. Views Read View source View history. For the two production inputs labour and capital, with fixed unit costs of the inputs, the equation of the isocost line is.

We could draw as many isoquants as we like. With the change in the factor prices the slope of iso cost lien will change. Privacy policy About WikiEducator Disclaimers.

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This equals the ratio of marginal productivity of two inputs.

The producer must have sufficient capacity to buy necessary factor inputs to isocoats able to reach its desired production level. The chapter examines the theory of production or how firms organize production i. It is known as the actual rate of factor substitution, the rate at which the firm can substitute labour by capital in the market place. Where the isoquant touches but does not cross the lowest isocost line is the least cost position.

The least cost factor combination can be determined by imposing the isoquant map on isocost line. This page has been accessedtimes.

In fact, every point on a lsocosts isocost line represents the same total cost. To find the least-cost combination of factors for fixed level of output we combine Fig.

The focus of this chapter is on the firm.

Isoquant and Isocost Lines (With Diagram) | Economics

Each curve shows the alternative combinations of labour and capital that would produce 8 and 10 units of output, respectively. To construct isocost lines we need information ksoquants the market prices of the two factors.

Thus, profit maximisation and cost minimisation are the two sides of the same coin. 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.