ISOCOST ISOQUANT PDF

By Will Kenton Updated Sep 10, The isoquant curve is a graph, used in the study of microeconomics , that charts all inputs that produce a specified level of output. This graph is used as a metric for the influence that the inputs have on the level of output or production that can be obtained. The isoquant curve assists firms in making adjustments to inputs to maximize outputs, and thus profits. Essentially, the curve represents a consistent amount of output.

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If, in the short run, its total output remains fixed due to capacity constraint and if it is a price-taker i. Therefore, the only way to maximise profit is to minimise cost. Thus, profit maximisation and cost minimisation are the two sides of the same coin.

Moreover, supply depends on cost of production. The decision to supply an extra unit depends on the marginal cost of producing that unit. The long-run production function of a firm involving the usage of two factors, say, capital and labour is represented by equal-product curve or isoquant. An isoquant traces out the combinations of any two inputs which yield the same level of output. Isoquants are typically drawn as being convex to the origin because of the assumed substitutability of inputs.

Isoquants: An isoquant is a locus of points showing all the technically efficient ways of combining factors of production to produce a fixed level of output. It is also known as the equal product curve.

In case of two variable factors, labour and capital, an isoquant appears as a curve on a graph the axes of which measure quantities of the two factors. Table 1 illustrates, by using hypothetical numbers, seven alternative methods of producing six units of output. These alternatives are shown also in Fig. Each curve shows the alternative combinations of labour and capital that would produce 8 and 10 units of output, respectively. We could draw as many isoquants as we like. Isocost Lines: An isoquant shows what a firm is desirous of producing.

But, the desire to produce a commodity is not enough. The producer must have sufficient capacity to buy necessary factor inputs to be able to reach its desired production level.

The capacity of the producer is shown by his monetary resources, i. So, like the consumer the producer has also to operate under a budget resource constraint. This is picturised by his budget line called isocost line. To find the least cost combination of inputs to produce a given output, we need to construct such equal cost lines or isocost lines. 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. For example, suppose, the price of labour is Re. Then an outlay of Rs. All these and other various combinations are shown in Fig. These lines are straight lines because factor prices are constant and they have a negative slope equal to the factor-price ratio, i.

To find the least-cost combination of factors for fixed level of output we combine Fig. Suppose, the producer wants to produce six units of output. He could do so using the combination represented by points A, B or C in Fig. For example, the cost would be Rs. In Fig. It looks for that factor combination that is on the lowest of the isocost lines. Where the isoquant touches but does not cross the lowest isocost line is the least cost position. The minimum-cost points are A, D and E.

Each such point shows the equilibrium factor combination for maximising output subject to cost constraint, i. The slope of an isoquant gives the marginal rate of technical substitution MKTS defined as the increase in the quantity of one factor that is required to replace a unit decrease in another factor, when output is held constant along any isoquant. It is also known as the desired rate of factor substitution, i.

MKTS is, in fact, the ratio of the marginal products of the factors. To see this, consider an example. If the firm is to maintain the same level of output while reducing capital by one unit, it needs to replace one unit of capital by one unit of labour.

An isocost line shows the alternative quantities of two factors viz. Its slope is given by the ratio of the prices of the two factors. It is known as the actual rate of factor substitution, the rate at which the firm can substitute labour by capital in the market place.

Thus, in Fig. All the isocost lines in the diagram have the same slope because the relative prices of labour and capital are the same. If labour were relatively more expensive, the isocost lines would be steeper in Fig. When this happens the ratio of the prices of factors is the same as the ratio of their marginal products.

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Isoquant Curve

Fungsi produksi ini ditentukan oleh teknologi yang digunakan dalam proses produksi. Sifat dasar dari fungsi produksi ini bisa diketahui melalui analisis fungsi produksi sederhana dengan sistem 2 input — 1output. Perhatikan proses produksi di bawah ini yang menunjukkan berbagai kombinasi input X dan Y yang digunakan untuk memproduksi produk Q. Input X dan Y tersebut bisa melambangkan sumberdaya-sumberdaya seperti tenaga kerja dan modal atau energi dan bahan baku.

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Pengertian Isoquant dan Isocost dalam Teori Produksi

January 23, Produksi merupakan salah satu aktivitas terpenting dalam perekonomian. Untuk itulah produksi memang sangat dibutuhkan oleh semua pihak dalam suatu negara terutama bagi kelangsungan dan kelancaran perekonomian suatu negara. Layaknya seperti konsumen yang perilakunya memiliki acuan dalam melakukan aktivitas perekonomiannya yakni hukum Gossen. Begitu juga produsen memiliki sebuah perilaku yang harus memiliki acuan, dalam ilmu ekonomi ada dua acuan dalam perilaku produsen yakni kurva isoquant dan isocost. Perlu anda ketahui bahwasannaya faktor produksi merupakan salah satu aspek yang terpenting dalam kegiatan produksi, ketika faktor produksi tidak baik atau ada sebuah gangguan maka proses produksipun akan terpengaruh.

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Isoquant and isocosts

An isoquant shows all combination of factors that produce a certain output 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. Definition isoquant An isoquant shows all the combination of two factors that produce a given output In this diagram, the isoquant shows all the combinations of labour and capital that can produce a total output Total Physical Product TPP of 4, In the above isoquant, this could be 20 capital and 18 labour or more capital intensive 9 capital and 35 labour. With fixed capital employing extra workers gives a declining increase in the marginal product MP Marginal rate of factor substitution The marginal rate of substitution is the amount of one factor e.

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Isoquant and Isocost Lines (With Diagram) | Economics

Specifically, the point of tangency between any isoquant and an isocost line gives the lowest-cost combination of inputs that can produce the level of output associated with that isoquant. Equivalently, it gives the maximum level of output that can be produced for a given total cost of inputs. A line joining tangency points of isoquants and isocosts with input prices held constant is called the expansion path. A cost-minimizing input bundle is a point on the isoquant for the given y that is on the lowest possible isocost line. Put differently, a cost-minimizing input bundle must satisfy two conditions: it is on the y-isoquant no other point on the y-isoquant is on a lower isocost line. The case of smooth isoquants convex to the origin[ edit ] If the y-isoquant is smooth and convex to the origin and the cost-minimizing bundle involves a positive amount of each input, then at a cost-minimizing input bundle an isocost line is tangent to the y-isoquant.

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