Concept of isocost, Managerial Economics

The concept of isocost

In the use of resources, firms are faced with opportunity cost.  For every addition of say capital, they must forego a unit of say labour.

Exposition:                                               

194_isocost.png

Suppose the firm pays:

W for L (labour)

r for k (capital)

If C is the Total Cost (TC), then

C = rk + WL.  So if C is given as c, then the producer can choose among various combinations e.g.

                        k = C - WL

                              r     r

Thus if he spends all the money on k then he shall be at A and if he spends all the money on L then he shall be at B.  At A he spends C while at B he shall also spend C.  The line joining A and B is called Isocost line and is defined as locus of all different combinations of factors the firm can purchase given a stipulated money outlay and factor prices.

Posted Date: 11/28/2012 4:49:43 AM | Location : United States







Related Discussions:- Concept of isocost, Assignment Help, Ask Question on Concept of isocost, Get Answer, Expert's Help, Concept of isocost Discussions

Write discussion on Concept of isocost
Your posts are moderated
Related Questions


what is the relation between leverage and elasticity?

Ann owns a lawn-mowing company. She has 400 lawns she requires to cut every week. Her weekly revenue from these 400 lawns is $20,000. Given an 18-inch-deck push mower, a laborer ca

briefly explain oppurtunity cost in decision making?

Q. Relation between average cost and marginal cost? Relationship between MC and AC are the following: If MC is below AC then AC should be falling. This is because, if MC

Q. Explain Mark-up pricing? In addition to using above methods to conclude a firm's optimal level of output, a firm can also set price to maximise profit. Optimal markup rules

Ask questiHow does economic theory contribute to managerial decisions? on #Minimum 100 words accepted#

What will be the table of total cost function?

NATIONAL DEBT Taxation does not often raise sufficient revenue for the Government Expenditure.  So, governments resort to borrowing.  This government borrowing is called Publi