Explain about isocost line, Managerial Economics

Assignment Help:

Q. Explain about isocost line?

In economics, an isocost line signifies all combinations of inputs that cost the same total amount. Though, similar to the budget constraint in consumer theory, use of the isocost line pertains to cost-minimisation in production as opposed to utility-maximisation. For the two production inputs, capital and labour, with fixed unit costs of the inputs, equation of the isocost line is

rK + wL = C

Where w signifies the wage rate of labour, r represents interest rate of capital,

K is the units or amount of capital used, L is the amount of labour used whereas C is the total costof obtaining these inputs.

Absolute value of the slope of the isocost line, with labour plotted horizontally and capital plotted vertically, equals the ratio of the prices of inputs of capital and labour. The isocost line is combined with isoquant map to determine the optimal production. This optimality is arrived at a point where an isoquant and isocost curves are tangent to each other. It makes sure that firm attains the highest level of possible output with a given isocost line. Therefore the output is produced at with least cost or most efficiently. This tangency may also be interpreted as one where slopes of the isoquant and the isocost are equal. This entails that tangency ensures that marginal productivities of the two inputs are proportional to the ratios of prices of the two inputs.


Related Discussions:- Explain about isocost line

Discouting priciple, Using the discounting principle calculate the present ...

Using the discounting principle calculate the present value of an annuity of five years at Rs. 500 payments made at the end of each of the next five years at 10% interest. stion..

Show the method of production, Q. Show the method of production? A proc...

Q. Show the method of production? A process or method of production is a combination of inputs essential for the production of output. A method of production is technically eff

Marrise model od growth, what are the instruments variable of marrise''s mo...

what are the instruments variable of marrise''s model?

What is the economic role of government, Q. What is the economic role of go...

Q. What is the economic role of government? What are the roles? Meaning: economic role is the role played by the government in uplifting the economy. The important roles: 1.

Distinguish between positive and negative externalities, Question 1: 1 ...

Question 1: 1 Explain the importance of barriers to entry in the control of Monopoly rents. 2 Discuss the extent to which competition leads to market promotion? Questi

Demand and supply, The demand for good X is estimated to be:  where p x p...

The demand for good X is estimated to be:  where p x price of X in dollars M = personal disposable income in trillions of dollars per year P y = price of a competitive in do

Total cost of factor combinations, Q. Total cost of Factor Combinations? ...

Q. Total cost of Factor Combinations? Here we try to find total cost of every factor combination and choose the one that has the least cost. Cost of every factor combination is

Factors influencing the supply of a commodity, Factors influencing the supp...

Factors influencing the supply of a commodity a)         Own Price of the commodity There is a direct relationship between quantity supplied and the price so that the hig

The multiplier, The Multiplier In his theory Keynes asserted that cons...

The Multiplier In his theory Keynes asserted that consumption is a function of income, and so it follows that a change in investment, which we may call ΔI, meaning an incremen

Determine the theory of exchange and price theory, Determine the Theory of...

Determine the Theory of Exchange and  Price Theory Theory of Exchange is commonly called Price Theory. Price determination under various types of market conditions comes under

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