Isoquants

• Isoquants are similar to indifference curves but are

applied to the firm instead of the consumer
• Isoquants represent a certain amount of production and
combinations of inputs used to reach that output
• It is possible to substitute capital and labour in the long
run in order to produce output
• Isoquants show how easy or difficult it is to so do

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• The following shows a “usual” set of isoquants

Capital

Q0 < Q1 < Q2 < Q3

Q3
Isoquants show possible
Q2 combinations of inputs to
Q1 produce a certain amount of
Q0 output

Labour

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Isocosts

• Isocosts are similar to income constraints but are

applied to the firm instead of the consumer
• Isocosts represent a certain budget given to production
as well as combinations of inputs that can be used
with this budget
• Since labour and capital are substitutes in the long run,
their respective costs will influence in which
proportion they can be used
• Isocosts show what is possible to combine given a
certain total cost of production

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• The following shows an isocost

Capital

TC / PK

Slope = - PL / PK

The more an isocost is to the

right, the more budget is
allocated to production or the
lower the prices of each input

Labour
TC / PL

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Choice for a Firm
• The Firm chooses by minimising its costs given a certain
amount to produce

Capital

TC / PK
Choice of production

Labour
TC / PL
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