Optimal input combination for maximisation of output, Managerial Economics

Assignment Help:

Q. Optimal Input Combination for Maximisation of Output?

Equilibrium conditions of the firm are identical to the above situation which is, iso-cost line must be tangent to the highest possible isoquant and isoquant should be convex. Though the present problem is theoretically different. In this case firm has to maximise its output for a given cost. This is elucidated in the figure:

1544_Optimal Input Combination for Maximisation of Output.png

Figure: Maximisation of Output

Firm's cost constraint is given by iso-cost line AB. The maximum level of output that firm can produce is Q2since the point 'e' lies on the isoquant Q2. Point 'e' is the equilibrium point since at this point the iso-cost line AB is tangent to the isoquant Q2. Other points on the isocost line which is S and T, lie on a lower isoquant Q1. Points to the right of 'e' indicate higher levels of output that are desirable, however aren't attainable because of the cost constraint. Therefore Q2 is the maximum output possible for given cost. The optimal combination of factors is OK1 and OL1.

The above analysis illustrates that optimal combination of inputs required for a firm to minimise the cost of producing a given level of output or to maximise the output for a given cost outlay is given at tangency point of an isoquant and is cost line.

The above analysis is based on constant factor prices. If factor prices change, firm will choose another factor combination which will minimise the cost of production for given output or maximise the level of output for a given cost


Related Discussions:- Optimal input combination for maximisation of output

Liquidity and the multiple contraction of deposits, Liquidity and the multi...

Liquidity and the multiple contraction of deposits Many of the instruments of monetary policy depend upon limiting liquidity, which has a multiple effect upon bank' deposits t

The effect of this immigration on wages, An Economy consists of two regions...

An Economy consists of two regions, the North & the South. The short-run elasticity of labor demand in every region is -0.5. Labor supply is perfectly inelastic within both regions

Open economy, Open Economy None of the three economies considered so f...

Open Economy None of the three economies considered so far are engaged in trade with Foreign Countries.  Such economies are often referred to as Closed Economies.  In contrast

Demand, explain the law of demand

explain the law of demand

Cheap labour - reason for protection, Cheap Labour   It is often argu...

Cheap Labour   It is often argued that the economy must be protected from imports which are produced with cheap, or 'sweated", labour.  Some people argue that buying foreign

Social cost of unemployment, The Social Cost of Unemployment i.      F...

The Social Cost of Unemployment i.      For the individual, there is the demoralizing effect which can be devastating particularly when they are old.  This is because as some

Managerial economic, gap between economic theory and business practice

gap between economic theory and business practice

What is managerial economics according to spencer, What is Managerial econo...

What is Managerial economics according to Spencer and Siegelman Spencer and Siegelman:  Managerial economics is "the integration of economic theory with business practice for t

Using factor incomes for calculating national income, Using Factor Incomes ...

Using Factor Incomes for Calculating National Income     A second method is to sum up all the incomes to individuals in the form of wages, rents, interests and profits t

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