Table of Contents
- 1 What is the slope of an ISO cost line equal to?
- 2 When the slope of the isocost is equal to the slope of the isoquant it represents what?
- 3 What is least cost combination?
- 4 What is the difference between Isocosts and Isoquants?
- 5 How is ISO profit line calculated?
- 6 What do you understand by the term least cost combination of factors explain producer equilibrium with the help of Isoquant analysis?
What is the slope of an ISO cost line equal to?
-w/r =
The slope of the line is -w/r = the negative of the factor price ratio. the line does not change. We can now determine which combination of factors produces a given quantity at the lowest total cost. There are three isocost lines.
When the slope of the isocost is equal to the slope of the isoquant it represents what?
The essential condition is that the slope of the isocost line must equal the slope of the isoquant. Thus at a point of equilibrium marginal physical productivities of the two factors must be equal the ratio of their prices.
Why is ISO cost line downward sloping?
The isoquants slope downward because both labour and capital have positive marginal products. More of either input increases output; so if output is to be kept constant as more of one input is used, less of other input must be used.
What is ISO cost curve?
An isoquant curve is a concave line plotted on a graph, showing all of the various combinations of two inputs that result in the same amount of output. Most typically, an isoquant shows combinations of capital and labor and the technological trade-off between the two.
What is least cost combination?
The principle of least cost combination states that if two factor inputs are considered for a given output the least cost combination will be such where their inverse price ratio is equal to their marginal rate of substitution.
What is the difference between Isocosts and Isoquants?
As nouns the difference between isoquant and isocost is that isoquant is (economics) a line of equal or constant economic production on a graph, chart or map while isocost is (economics) a curve that represents a combination of various inputs that cost the same.
Why are the ISO cost lines straight line?
The isocost lines show the combinations of the two factors, generally labor and capital used in certain proportions in a business firm. When the input prices and the quantities used are fixed, the isocost line is considered straight.
What is ISO cost explain the properties of ISO cost?
An isocost line is a curve which shows various combinations of inputs that cost the same total amount . For the two production inputs labour and capital, with fixed unit costs of the inputs, the isocost curve is a straight line .
How is ISO profit line calculated?
In case you don’t remember, when a line is in standard form like P = Ax + By, the slope is -A/B. The graph of the profit function is called an iso-profit line. It is called this because “iso” means “same” or “equal” and the profit anywhere on the line is the same.
What do you understand by the term least cost combination of factors explain producer equilibrium with the help of Isoquant analysis?
2. To maximise its output for a given cost. Thus the least cost combination of factors refers to a firm producing the largest volume of output from a given cost and producing a given level of output with the minimum cost when the factors are combined in an optimum manner.