Least-Cost Combination

• The problem of least-cost combination of factors refers to

a firm getting the largest volume of output from a given
cost outlay on factors when they are combined in an
optimum manner.
• In the theory of production, a producer will be in
equilibrium when, given the cost-price function, he
maximizes his profits on the basis of the least-cost
combination of factor. For this he will choose that
combination of factors which maximizes his cost of
production. This will be the optimum combination for
him.
 Assumptions

• The assumptions on which this analysis is based are:

• There are two factors. Capital and labor.
• All units of capital and labor are homogeneous.
• The prices of factors of production are given and
constant.
• Money outlay at any time is also given.
• Perfect competition is prevailing in the factor market.
• On the basis of given prices of factors of production
and given money outlay we draw a line A, B.