0
Isocost Lines
Recall that a universally accepted objective of any firm is to maximise profit.
If the firm maximises profit, it will necessarily minimise cost for producing a
given level of output or maximise output for a given level of cost. Suppose
there are 2 inputs: capital (K) and labour (L) that are variable in the relevant
time period. What combination of (K,L) should the firm choose in order to
maximise output for a given level of cost?
If there are 2 inputs, K,L, then given the price of capital (P
k
) and the price of
labour (P
L
), it is possible to determine the alternative combinations of (K,L) that
can be purchased for a given level of expenditure. Suppose C is total
expenditure, then
C= P
L
* L + P
k
* K
This linear function can be plotted on a graph.
ISOCOST
K
C/P
k
A
B
O
C/P L
L
•
N
•
P
Figure 7.7: Isocost line
If only capital is purchased, then the maximum amount that can be bought is
C/P
k
shown by point A in figure 7.7. If only labour is purchased, then the
maximum amount of labour that can be purchased is C/P
L
shown by point B in
the figure. The 2 points A and B can be joined by a straight line. This straight
line is called the isocost line or equal cost line. It shows the alternative
combinations of (K,L) that can be purchased for the given expenditure level C.
Any point to the right and above the isocost is not attainable as it involves a
level of expenditure greater than C and any point to the left and below the
isocost such as P is attainable, although it implies the firm is spending less than
C. You should verify that the slope of the isocost is
1
-
k
L
k L
P
P
P
C
*
P
C
∆ L
∆ K
EXAMPLE :
Consider the following data:
P
L
= 10, P
k
= 20 Total Expenditure = 200.
Let us first plot the various combinations of K and L that are possible. We
1 The nagative sign is due to the fact that the slope of the isocost is negative.15
consider only the case when the firm spends the entire budget of 200. The
alternative combinations are shown in the figure (7.8).
P r o d u c t i o n F u n c t i o n
K
A
10
9
8
7
6
5
4
3
2
1
O
B
L
C
2 4 6 8 1 0 1 2 1 4 1 6 1 8 2 0
Figure 7.8: Shifting of Isocost
The slope of this isocost is -½. What will happen if labour becomes more
expensive say P
L
increases to 20? Obviously with the same budget the firm
can now purchase lesser units of labour. The isocost still meets the Y-axis at
point A (because the price of capital is unchanged), but shifts inwards in the
direction of the arrow to meet the X-axis at point C. The slope therefore
changes to -1. You should work out the effect on the isocost curve on the
following:
(i) decrease in the price of labour
(ii) increase in the price of capital
(iii) decrease in the price of capital
(iv) increase in the firms budget with no change in the price of labour and capital
What else can I help you with?
What is the difference between an isocost curve and an isocost line?
the answer
Which transformation of OA would result in an image parallel to OA?
To obtain an image of line OA that is parallel to OA itself, you can perform a translation transformation. This involves shifting the entire line OA in a specific direction by a certain distance without altering its orientation. The translated line will remain parallel to the original line OA.
When a line gets too long and the extra words are moved automatically to the next line what is that called?
When a line gets too long and the extra words are moved automatically to the next line, it is called "word wrapping." This feature ensures that text remains within the confines of a designated space, such as a text box or page margin, by shifting overflow text to the next line without breaking words. Word wrapping enhances readability and maintains the layout of the text.
What words in line 82 remind you that this part is flashback?
In line 82, words like "remember" or "recall" typically signal that the narrative is shifting to a flashback, indicating that the events being described are in the past. Additionally, phrases that evoke nostalgia or reflection can also suggest that the character is looking back on a previous experience. These cues help to establish the temporal shift from the present moment to a memory.
How does Macbeths opening line mirror a line in the first scene?
Macbeth's opening line, "If you can look into the seeds of time, and say which grain will grow and which will not," parallels the witches' cryptic dialogue in the first scene, where they discuss the chaotic nature of their prophecies. Both lines emphasize themes of fate, foreknowledge, and the unpredictable consequences of ambition. This mirroring sets the tone for Macbeth's internal struggle with destiny and moral choice throughout the play. Ultimately, it foreshadows the intertwining of the supernatural and human agency in his tragic trajectory.
What is the difference between an isocost curve and an isocost line?
the answer
ISOcost line is also called as profit line?
The ISOcost line shows combinations of inputs that yield the same level of cost. It is not the same as the profit line, which represents combinations of outputs that generate the same level of profit. Profit lines are typically used to analyze profit-maximizing decisions, while ISOcost lines are used to analyze cost-minimizing decisions.
Define isocost line?
A line along which the cost of something -- usually a combination of two factors of production -- is constant. Since these are usually drawn for given prices, which are therefore constant along the line, an isocost line is usually a straight line, with slope equal to the ratio of the (factor) prices.
Why are isocost lines straight lines?
Isocost lines are straight because they represent all the possible combinations of inputs that can be purchased for a given total cost. Since the cost per unit of input is constant along a straight line, different combinations on the line will have the same total cost. This allows firms to find the most cost-effective way to produce a given level of output.
Does earthquakes along line reflect the shifting of continental plates?
yes
How can the accuracy of a bicycle's gear shifting be improved by measuring chain line?
Measuring the chain line of a bicycle can help improve the accuracy of its gear shifting by ensuring that the chain runs straight and smoothly between the gears. This alignment can prevent issues such as chain skipping or slipping, resulting in a more efficient and reliable gear shifting experience.
How do you replace an electronic shift module on a 2000 Mercedes ml320?
The electronic shifting was not introduced to the ML line until 2004. Model year 2000 still had a shifting cable attached t the transmission
What is the cause of quakes?
pressure is built on a fault line. the pressure is released by the earth's crust shifting and that causes earthquakes.
What is the term for identifying a phase line close to the enemy position used for coordinating the lifting or shifting of supporting fires with the final deployment of maneuver elements?
Final coordination line
What is the term for identifying a phase line close to the enemy position used to coordinate the lifting or shifting of supporting fires with the final deployment of maneuver elements?
Final coordination line
How do i make linerider do a manual on linerider?
to do a manual u need ti use a blue line. then you put the start on the line so the line is in the middle. keep shifting it until it jumps on its nose and u have your manual!!! hope this helped ^_^
Your 2000 dodge ram diesel has trouble shifting into overdrive what is the problem?
four wheel drive drive line came disconnected
