The isocost line represents the total cost C as constant for all K-L combinations satisfying the equation. “An isocost line shows the different combinations of factors of production that can be employed with a given total cost.”

What is definition of isocost line?

The isocost line represents the total cost C as constant for all K-L combinations satisfying the equation. “An isocost line shows the different combinations of factors of production that can be employed with a given total cost.”

What is isocost line investopedia?

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 .

What is the difference between isoquant and isocost?

Isocost curve is a producer’s budget line while isoquant is his indifference curve. Isoquant is also called as equal product curve or production indifference curve or constant product curve. Isoquant indicates various combinations of two factors of production which give the same level of output per unit of time.

How do you calculate isocost line?

The isocost line is a firm’s budget constraint when buying factors of production. To calculate the isocost line for a firm, begin with the total cost equation, TC = (W x L) + (r x K) and solve for K. W= wages, L =labor, r = the rent (what you pay for the use of capital), and K = capital.

What are the role of isocost lines in isoquant?

An isocost show all combinations of factors that cost the same amount. Isocosts and isoquants can show the optimal combination of factors of production to produce the maximum output at minimum cost.

Why isoquants are negatively sloped?

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.

Why do isoquants not intersect?

Therefore, isoquants cannot intersect. An isoquant must always be convex to the origin. This is because of the operation of the principle of diminishing marginal rate of technical substitution.

What is isocost line Why does hierarchy of isocost lines occur?

An isocost line is a locus of points showing the alternative combinations of factors that can be purchased with a fixed amount of money. In fact, every point on a given isocost line represents the same total cost. To construct isocost lines we need information about the market prices of the two factors.

What is slope of isocost line?

The isocost line represents all combinations of capital and labor that have the same total cost. Therefore, any values of capital and labor that the firm can choose must satisfy the equation on the left that you previously derived. Then slope of the isocost line is W/r or the relative price of the inputs.

What is isoquants and its characteristics?

1. The isoquant is downward sloping from left to right i.e. it is negatively sloped. 2. An isoquant is convex to the origin because of the diminishing marginal rate of technical substitution.