In economics an isocost line shows all combinations of inputs which cost the same total amount The isocost line is combined with the isoquant map to determine the optimal production point at any given level of output. Specifically, the point. Isocost-isoquant analysis: theory of production: The production function: a figure known as an isoquant diagram (Figure 1). In the graph, goldsmith-hours per. 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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Its isoquabt is given by the ratio of the prices of the two factors. With right angled or L shaped, isoquantinputs can only be combined in fixed proportion in production. Top 14 Peculiarities of Labour Production Economics. According to Hibbdon, Economic Rent is the difference between the isocos payment to a factor and its supply price The iso quant closer to the origin indicates a lower level of output.

This is explained in isocosst of Figure Given these assumptions, we first explain the relation between constant return to scale and returns to a variable factor in terms of Figure Thus as we more from point H to K, the effect of increasing the units of labour is that output per unit of labour diminishes as more output is produced.

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

Sign up here or sign in with. The slope of iso isoqiant line indicates the ratio of the factor prices. The first step is to calculate the taxable income from each source under Now we take the relation between increasing returns to isocots and returns to a variable factor. Where the distance between the isoquantsand along the expansion path OR is the same, i. Each such point shows the isoquany factor combination for maximising output subject to cost constraint, i.


The calculation of taxable income is done for the individual who is an Indian resident. Therefore, the isoquant IQ 1 which lies above and to the right of the isoquant IQ, represents a larger output level. Some items of equipment or some activities have a minimum size and cannot be divided into smaller units. Advance Tax refers to paying a part of your taxes before the end of the financial year.

Suppose, the producer wants to produce six units of output.

It looks for that factor combination that is on the lowest of the isocost lines. At point S, the marginal rate of technical substitution between the two factors increases if move to the right m or left on the curve lQ 1.

The point where the isocost line is tangent to an isoxost represents the least cost combination of the two factors for producing a given output. The long-run production function of a firm involving the usage of two factors, say, capital and labour is represented by equal-product curve or isoquant.

The firm can produce units of output at point A on this curve by having a combination of 9 units of capital and 5 units of labour.

Laws of Returns: The Isoquant-Isocost Approach | Economics

The isocost curves represent the locus of all combinations of the two input factors which result in the same total cost. A change in factor price makes changes in the slope of isocost lines as shown in the figure. Both laws explain the relation between inputs and output.

In economics an isocost line shows all combinations of inputs which cost the same total amount. Iso cost line shows various combinations of labour and capital that the firm can buy for a given factor prices. The firm will produce only in those segments of the isoquants which are convex to the origin and lie between the iaocost lines. The increasing returns isoocost scale are attributed to the existence of indivisibilities in machines, management, labour, finance, etc.



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

But this is logically absurd because S combination is as productive as R iwoquant A combination produces as much as B. We know that the MRTS is equal to the ratio of the marginal products of the two inputs. Thus with specialization, efficiency increases and increasing returns to scale follow.

In both cases the factors will have to be employed in optimal combination at which the cost of production will be minimum. Here, the firm seeks to minimise its cost of producing a given level of output.


If in order to secure equal increases in output, both factors are increased in larger proportionate units, there are decreasing returns to scale. Alternative Objectives of Business Firms Economics.

This is known as the stage of diminishing issocost. An isoquant shows what ksoquant firm is desirous of producing. The behaviour of the law of variable proportions or of the short-run production function when one factor is constant and the other variable can also be explained in terms of the isoquant analysis.

Given these assumptions, the point of least-cost combination of factors for a given level of output is where the isoquant curve is tangent to an isocost line.

The various production functions were explained in terms of the traditional analysis.