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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For this, specialized equipment can be installed.

Isoquant and Isocost Lines (With Diagram) | Economics

The isocost curves represent the locus of all combinations of the two input factors which result in the same total cost. 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. As the industry continues to expand the demand for skilled labour, land, capital, etc. Self-Assessment is a system under which the taxpayer is required to declare the basis jsocost his assessment e.

Read this article to learn about the laws of returns: When a business unit expands, the returns to scale increase because isoquabt indivisible factors are employed to their full capacity.

The increasing returns to scale are attributed to the existence of isocodt in machines, management, labour, finance, etc. This is known as the stage of diminishing returns.

The isoquants have an isocoet advantage over the former because they can be labelled in physical units, as,etc. This article explains them with the help of the isoquant-isocost approach.

Isoquant and Isocost Lines (With Diagram) | Economics

When a large number of firms are concentrated at one place, skilled labour, credit and transport facilities are easily available. The second condition is that the isoquant curve must be convex to the origin at the point of tangency with the isocost line, as explained above in terms of Figure So, like the consumer the producer has also to operate under a budget resource constraint.


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. As more units of labour are employed to produce units of the product, lesser and lesser units of capital are used. In the case of an isoquant the product can be measured in physical units. In this region which lies beyond the ridge line OB there is too much of the variable factor labour in relation to the fixed factor capital.

According to the Modern theory of factor pricing, price o Now we take the relation between increasing returns to scale and returns to a variable factor. At this point, the firm is minimising its cost for producing units. Each curve shows the alternative combinations of labour and capital that would produce 8 and 10 units of output, respectively. There are two essential or second order conditions for the equilibrium of the firm.

And isoquant must be convex to the origin. Not only this, a firm also enjoys increasing returns to scale due to external economies.

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

This is picturised by his budget line called isocost line. Thus the isoquants are convex to the origin due to diminishing marginal rate of substitution.

By moving from F to E or from G to E, the producer attains the same output level at a lower cost. Constant returns to scale also result when factors of production are perfectly divisible, substitutable, homogeneous and their supplies are perfectly elastic at given prices.


Ridge lines joins isocsot on the various isoquants where the isoquants have zero isoqusnt and thus zero MRTSlk.

That is why, in the case of constant returns to scale, the production function is homogeneous of degree one. If in order to get equal increases in output, both factors are increased in smaller proportionate units, there are increasing returns to scale. The firm is in equilibrium at point P where the isoquant curve is tangent to the iskquant line CL. See full list of related question in economics. Alternative Objectives of Business Firms Economics.

The producer can attain P level of output by the factor combination represented by point E, which is on iso-cost line K 2 L 2.

Another reason is the balancing of external economies and external diseconomies. Indivisible factors may become inefficient and less productive. The iso quant closer to the origin indicates a lower level of output.

This condition makes sense: If by increasing two factors, say labour and capital, in the same proportion, output increases in exactly the same proportion, there are constant returns to scale. It is also known as the equal product curve. So the condition that the MRTS be equal to the input cost ratio is equivalent to the condition that the marginal product per dollar is equal for the two inputs.

Therefore, a isqouant isoquant cannot be an equal product curve. Work can be divided into small tasks and workers can be concentrated to narrower range of iscoost.