COBB DOUGLAS, ISO COST & QUANTITY

Presented Master subtitle style Click to edit by Mohammad kazim Id no : 2701132

2/14/13

Isoquant Isocost Analysis

Click to edit Master subtitle style 2/14/13

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

2/14/13

45 40 35

An isoquant
Units of K 40 20 10 6 4 Units of L 5 12 20 30 50 Point on diagram a b c d e

Units of capital (K)

30 25 20 15 10 5 0 0 5 2/14/13 10 15 20 25

30

35

40

45

50

Units of labour

45 40 35

An isoquant
a Units of K 40 20 10 6 4 Units of L 5 12 20 30 50 Point on diagram a b c d e

Units of capital (K)

30 25 20 15 10 5 0 0 5 2/14/13 10 15 20 25

30

35

40

45

50

Units of labour

45 40 35

An isoquant
a Units of K 40 20 10 6 4 b Units of L 5 12 20 30 50 Point on diagram a b c d e

Units of capital (K)

30 25 20 15 10 5 0 0 5 2/14/13 10 15 20 25

30

35

40

45

50

Units of labour

45 40 35

An isoquant
a Units of K 40 20 10 6 4 b Units of L 5 12 20 30 50 Point on diagram a b c d e

Units of capital (K)

30 25 20 15 10 5 0 0 5 2/14/13 10 15 20 25

c d e

30

35

40

45

50

Units of labour

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape diminishing marginal rate of substitution

2/14/13

Diminishing marginal rate of factor substitution

14 12

g
K = 2

MRS = 2 h

Units of capital (K)

10 8 6 4 2 0 0 2 2/14/13
L = 1

MRS = K / L

isoquant
4 6 8 10 12 14 16 18 20 22

Units of labour

Diminishing marginal rate of factor substitution

14 12

g
K = 2

MRS = 2 h

Units of capital (K)

MRS = K / L

10 8 6 4 2 0 0 2 2/14/13
L = 1

j
K = 1 L = 1

MRS = 1 k

isoquant
4 6 8 10 12 14 16 18 20

Units of labour

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape diminishing marginal rate of substitution an isoquant map

2/14/13

30

An isoquant map

Units of capital (K)

20

10

0 0 2/14/13 10

I 1

I I5 I4 I 3 2
20

Units of labour

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape diminishing marginal rate of substitution isoquants and returns to scale

2/14/13

30

An isoquant map

Units of capital (K)

20

10

0 0 2/14/13 10

I 1

I I5 I4 I 3 2
20

Units of labour

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape diminishing marginal rate of substitution isoquants and returns to scale isoquants and marginal returns

2/14/13

Diminishing marginal rate of factor substitution

14 12

g
K = 2

MRS = 2 h

Units of capital (K)

MRS = K / L

10 8 6 4 2 0 0 2 2/14/13
L = 1

j
K = 1 L = 1

MRS = 1 k

isoquant
4 6 8 10 12 14 16 18 20

Units of labour

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape diminishing marginal rate of substitution isoquants and returns to scale isoquants and marginal returns

Isocosts

2/14/13

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape diminishing marginal rate of substitution isoquants and returns to scale isoquants and marginal returns slope and position of the isocost

Isocosts

2/14/13

30

An isocost
Assumptions PK = 20 000 W = 10 000 TC = 300 000

25

Units of capital (K)

20

15

10

0 0 2/14/13 5 10 15 20 25 30 35 40

Units of labour

30

An isocost
Assumptions PK = 20 000 W = 10 000 TC = 300 000 a b c TC = 300 d 000
5 10 15 20 25 30 35 40

25

Units of capital (K)

20

15

10

0 0 2/14/13

Units of labour

ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape diminishing marginal rate of substitution isoquants and returns to scale isoquants and marginal returns slope and position of the isocost shifts in the isocost

Isocosts

2/14/13

ISOQUANT- ISOCOST ANALYSIS

Least-cost combination of factors for a given output

point of tangency

2/14/13

Finding the least-cost method of production 35

30 25 20 15 10 5 0 0 2/14/13 10 20 30 40 50

Units of capital (K)

Assumption s PK = 20 000 W = 10 000 TC = 200 000 TC = 300 000 TC = 400 000 TC = 500 000

Units of labour

Finding the least-cost method of production 35

30 25 20 15

Units of capital (K)

TC = 500 000

r
10 5 0 0 2/14/13 10 20 30

TC = 400 000 t

TPP 1
50

40

Units of labour

ISOQUANT- ISOCOST ANALYSIS

Least-cost combination of factors for a given output

point of tangency comparison with marginal productivity approach

2/14/13

ISOQUANT- ISOCOST ANALYSIS

Least-cost combination of factors for a given output

point of tangency comparison with marginal productivity approach

Highest output for a given cost of production

2/14/13

Finding the maximum output for a given total cost

Units of capital (K)

O
2/14/13

TPP 5 TPP TPP 4 TPP3 TPP 2 1 Units of labour

Finding the maximum output for a given total cost

Units of capital (K)

Isocost

O
2/14/13

TPP 5 TPP TPP 4 TPP3 TPP 2 1 Units of labour

Finding the maximum output for a given total cost

r s
Units of capital (K)

u v
O
2/14/13

TPP 5 TPP TPP 4 TPP3 TPP 2 1

Units of labour

Finding the maximum output for a given total cost

r s
Units of capital (K)

K 1

u v
O
2/14/13

L 1

TPP 5 TPP TPP 4 TPP3 TPP 2 1

Units of labour