Concept of isocost, Managerial Economics

Assignment Help:

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.


Related Discussions:- Concept of isocost

Controlover supply of inputs - sources of monopoly, Q. Controlover Supply o...

Q. Controlover Supply of Inputs - sources of monopoly? Furthermore, a monopoly situation may arise because of control over the supply of an essential input -skilled labour, raw

New york offers the payout, Lots of states have scratch offs with various d...

Lots of states have scratch offs with various different monetary payoffs. For example, the "$500 a week for life" in New York offers the payout and odds structure noted below.

Salvatore, manual problems solution of demand theory

manual problems solution of demand theory

Fall in supply - effect on equilibrium price, Fall in Supply When...

Fall in Supply When the supply falls, the supply curve shifts to the left to position S 1 S 1 .  At the initial equilibrium price P 1 , quantity supplied falls from q 1

Ans, State the difficulties in the measurement of profit.

State the difficulties in the measurement of profit.

Importance of income elasticity, Importance of Income Elasticity If a ...

Importance of Income Elasticity If a country is experiencing economic growth, the income of the people will increase.  However, for those engaged in the production of goods wi

Mankiw model of nominal rigidities, Mankiw Model of Nominal Rigidities   ...

Mankiw Model of Nominal Rigidities   There are two related reasons for which  firms do not  frequently change prices. First, as we saw in the discussion on menu costs, the cost

Keynesian theory of consumption function, THE KEYNESIAN THEORY OF CONSUMPTI...

THE KEYNESIAN THEORY OF CONSUMPTION FUNCTION The theory was developed during the Great Depression which plagued Europe and America.  During this time, there was excess capacit

Homework, 1. What does a MNC have to consider that a domestic company does ...

1. What does a MNC have to consider that a domestic company does not, and how does this impact capital budgeting? in addition to the complications encountered in doing a capital bu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd