ISOQUANTS AND ISOCOSTS 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. An isoquant is a contour line drawn through the set of points at which the same quantity of Isoquants are typically drawn along with isocost curves in capital- labor graphs, showing the technological tradeoff between capital and labor in the . 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.

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In both cases the factors will have to be employed in optimal combination at which the cost of production will be minimum.

This indicates that one factor can be used a little more and other factor a little less, without changing the level of output. As with indifference curves, two isoquants can never cross. These lines are straight lines because factor prices are constant and they have a negative slope equal to the factor-price ratio, i.

Isoquant – Wikipedia

The iso cost line will shift to the right isqouants money spent on factors increases or firm could buy more as the factor prices are given. The assessee will be liable for penal int See full list of related question in economics. The higher the isoquant, the higher the production. Top 14 Peculiarities of Labour Production Economics.

An isocost line shows the alternative quantities of two factors viz. An isoquant shows that extent to which the firm in question has the ability to substitute between the two different inputs at will in order to produce the same level of output.

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The producer minimises his costs by employing OB amount of capital plus OA amount of labour determined, by the tangency of the iso-quant P with the iso-cost line K 2 L 2. Finally, any combination of inputs above or to the right of an isoquant results in more output than isocosgs point on the isoquant.

Explain a firm’s equilibrium with the help of isoquants and isocost line.

Iso quants are equal revenue lines. An isoquant map can also indicate decreasing or increasing returns to scale based on increasing or decreasing distances between the isoquant pairs of fixed output increment, as output increases.

This is picturised by his budget line called isocost line.

Also, every possible combination of inputs is on an isoquant. After reading this chapter, you are expected to learn about: This page was last modified on 16 Aprilat For the two production inputs labour and capital, with fixed unit costs of the inputs, the equation of the isocost line is. Alternative Objectives of Business Firms Economics. Views Read Edit View history. 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.

The marginal physical product per rupee of one factor must be equal to tht of the other factor. Iso quant is also known as Production indifference curve. The essential condition is that the slope of the isocost line must equal the slope of the isoquant.

Isoquant and Isocost Lines (With Diagram) | Economics

Although the marginal product of an input decreases as you increase isoocosts quantity of the input while holding all other inputs constant, the marginal product is never negative in the empirically observed range since ispquants rational firm would never increase an input to decrease output.

Thus at a point of equilibrium marginal physical productivities of the two factors must be equal the ratio of their prices. For example, the cost would be Rs.

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Where the isoquant touches lsoquants does not cross the lowest isocost line is the least cost position. A cost-minimizing input bundle is a point on the isoquant for the given y that is on the lowest possible isocost line.

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Isoquant and Isocost Lines (With Diagram) | Economics

The only relevant portion of the isoquant is the one that is convex to the origin, part of the curve which is not convex to the origin implies negative marginal isocoxts for factors of production.

The slope depends on the prices of factors of production and the amount of money which the firm spends on the factors.

Isoquant indicates various combinations of two factors of production which give the same level of output per unit of time. Conversely, if the distance is decreasing as output increases, the firm is experiencing increasing returns to scale; doubling both inputs results in placement on an isoquant with more than twice the output of the original isoquant. Fundamental Methods of Mathematical Economics Third ed. Isoquants are typically drawn as being convex to the origin because of the assumed substitutability of inputs.

The decision to supply an extra unit depends on the marginal cost of producing that unit. Isoquant is also called as equal product curve or production indifference curve or constant product curve.

The focus of this chapter is on the firm. An isoquant is a locus of points showing all the technically efficient ways of combining factors of production to produce a fixed level of output.