What is isocost and isoquant lines?

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

What are the isocost lines?

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 . The line connecting these two points is the isocost line.

What is a isoquant line?

An isoquant (derived from quantity and the Greek word iso, meaning equal), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs.

How do you plot an 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 the difference between an isocost and an isoquant line?

Isocost lines are like PPF línea that represent only two goods. An isocost line shows all the combinations of inputs (factors of production) that have the same cost. Isoquant lines are like indifference curves.

How are isocosts and isoquats used in economics?

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.

How to calculate the isocost line for a firm?

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 happens to the isocost line when total outlay increases?

In the above figure, AB is the initial isocost line. When the firm increased its total outlay, the isocost line shifted rightwards to a higher position A’B’ where the producer could purchase combinations of inputs with higher units of labor and capital. Likewise, if the firm reduces its total outlay, the isocost line will shift leftwards to A”B”.