What is an isocost line?
What is an 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 the formula of 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 is isocost with example?
Isocost. An isocost shows all the combination of factors that cost the same to employ. In this example, a unit of labour and capital cost £6,666 each.
What is the other name of isocost line?
This way, an isocost line is also known as price line or outlay line. It is a counterpart of budget line of indifference curve analysis.
What are the characteristics of isocost?
In economics an isocost line shows all combinations of inputs which cost the same total amount given total cost of inputs. Isoquants are plotted with labor on one axis (generally the x-axis) and capital on the … An isoquant is a curve that shows all the combinations of inputs that yield the same level of output.
What is meant by isoquant and isocost line?
An isoquant shows all combinations of factors that produce a certain output. An isocost show all combinations of factors that cost the same amount.
What is the difference between isoquant and isocost line?
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.
What are the properties of ISO Quant?
The Properties of an Isoquant Curve
- Property 1: An isoquant curve slopes downward, or is negatively sloped.
- Property 2: An isoquant curve, because of the MRTS effect, is convex to its origin.
- Property 3: Isoquant curves cannot be tangent or intersect one another.
Why isocost lines are straight lines?
The isocost line represents all possible combinations of labor and capital that may be purchased for a given total cost. The slope of the isocost line is the ratio of the input prices of labor and capital. If input prices are fixed, then the ratio of these prices is clearly fixed and the isocost line is straight.
What are the role of isocost lines in ISO Quant?
The slope of iso cost line indicates the ratio of the factor prices. A set of isocost lines can be drawn for different levels of factor prices, or different sums of money. The iso cost line will shift to the right when money spent on factors increases or firm could buy more as the factor prices are given.
What are the types of isocost?
Q1, Q2 and Q3 are three different isocosts. The isocost on the right represents a higher outlay.
What are the properties of isocost?
The ICLs possess the following properties: (ii) The numerical value of the slope of an ICL is equal to rX/ rY , or, it is equal to the ratio of the input prices. (iii) It is obtained from (8.28) that the x-and y-intercepts of the iso-cost line are / rX and /ry, respectively.