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

Cheapening of materials and equipments, Q. Cheapening of Materials and Equi...

Q. Cheapening of Materials and Equipments? Expansion of an industry increases the demand for different kinds of materials and capital equipments. This will result in large scal

Elasticity of demand, a bus operates two routes,one to harare and another o...

a bus operates two routes,one to harare and another one to johanesburg.the company analyst estimated that the elasticity of demand for joburg is 0.9 while for harare is 2.the compa

Resources, “Managerial economics involves use of economic analysis to make ...

“Managerial economics involves use of economic analysis to make business decisions involving the best use of a firm’s scarce resources” Explain the statement with suitable example.

Inflation, Meaning The word inflation has at least four meanings. ...

Meaning The word inflation has at least four meanings. A persistent rise in the general level of prices, or alternatively a persistent falls in the value of money.

Term paper, I have a research paper that is due, my schedule is so full tha...

I have a research paper that is due, my schedule is so full that I need assistance due to overload are you interested in the research paper? course - managerial economics TEXT: Man

Price under monopoly, The aim of monopolist is to maximise profit therefore...

The aim of monopolist is to maximise profit therefore; he would produce that level of output and charge that price which gives him maximum profits. He would be in equilibrium at th

Voluntary monopoly through combinations, To eliminate competition and there...

To eliminate competition and thereby secure higher prices, firms producing a specific product can come together and make monopoly agreements. These are called as industrial combina

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