Optimum combination of resources, Managerial Economics

Optimum combination of resources

The firm can maximise output given costs.  That is when the entrepreneur attains the highest isoquant given a particular Isocost.

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At the point of tangency the absolute slope of Isoquant will be equal to the slope of the Isocost.  Two conditions should however prevail, namely:

i.   The necessary condition is that

                        w/r  = MPL/MPk                    or       MPL/PL   =    MPk/Pk

ii. The sufficient condition is that the Isoquant must be convex to the Isocost point of Tangency.

 

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Posted Date: 11/28/2012 4:53:02 AM | Location : United States







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