Micro Eco session

Long run- Isoquants and Ridge lines

Isoquant- shows combinations of two inputs the firm can use to produce a specific level of
output.
Economically relevant segment- upward sloping isoquant is economically irrelevant.
Marginal Rate of technical substitution- slope of isoquant& expressed mathematically. (Shape is
convex)
MRS slope of indifference curve.

Substitutes and Complementary Inputs- slope is straight -rate of substitution is Constant and
fixed. Perfect substitute.
If L shaped, complementary, no substitution at all. Increase the level of output, labor/ capital
does not need be increased. Inputs are perfectly complementary.

Isocost line: Shows combination of inputs that a firm can purchase at a given cost.

Producers’ equilibrium- max output with given cost or minimize cost with given output.
Expansion Path- Curve passing through points of tangency between firms isocost lines and its iso
quants.

Law of diminishing return- short run average cost. The same u-shape of LCS in long run is
explained by economies and dis economies of scale.