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COBB DOUGLAS, ISO

COST & QUANTITYPresented byMohammad kazimId no : 2701132

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Isoquant IsocostAnalysis

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

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Units

of K40201064

Units

of L 512203050

Point on

diagramabcde

Units of labour

Unitsofcapital(K)

An isoquant

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

4 5

0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0 4 5 5 0

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Units

of K40201064

Units

of L 512203050

Point on

diagramabcde

a

Units of labour

Unitsofcapital(K)

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

4 5

0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0 4 5 5 0

An isoquant

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Units

of K40201064

Units

of L 512203050

Point on

diagramabcde

a

b

Units of labour

Unitsofcapital(K)

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

4 5

0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0 4 5 5 0

An isoquant

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Units

of K40201064

Units

of L 512203050

Point on

diagramabcde

a

b

c

de

Units of labour

Unitsofca

pital(K)

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

4 5

0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0 4 5 5 0

Anisoquant

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

diminishing marginal rate of substitution

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Unitsofcapital(K)

Units of labour

g

hK= 2

L = 1

isoquant

MRS= 2 MRS= K /

L

substitution

0

2

4

6

8

1 0

1 2

1 4

0 2 4 6 8 1 0 1 2 1 4 1 6 1 8 2 0 2 2

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2/14/13 0

2

4

6

8

1 0

1 2

1 4

0 2 4 6 8 1 0 1 2 1 4 1 6 1 8 2 0

Unitsofcapital(K)

Units of labour

g

h

j

k

K= 2

L = 1

K= 1

L = 1

isoquant

MRS= 2

MRS= 1

MRS= K /L

substitution

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

diminishing marginal rate of substitution an isoquant map

i

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2/14/13 0

1 0

2 0

3 0

0 10 20

I

1

I

2

I

3

I

4

I5

Unitsofcapital(K)

Units of labour

An isoquant map

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

diminishing marginal rate of substitution isoquants and returns to scale

A i

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2/14/13 0

1 0

2 0

3 0

0 10 20

I

1

I

2

I

3

I

4

I5

Unitsofcapital(K)

Units of labour

An isoquant map

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

diminishing marginal rate of substitution isoquants and returns to scale

isoquants and marginal returns

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2/14/13 0

2

4

6

8

1 0

1 2

1 4

0 2 4 6 8 1 0 1 2 1 4 1 6 1 8 2 0

Unitsof

capital(K)

Units of labour

g

h

j

k

K= 2

L = 1

K= 1

L = 1

isoquant

MRS= 2

MRS= 1

MRS= K /L

substitution

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

diminishing marginal rate of substitution isoquants and returns to scale

isoquants and marginal returns

Isocosts

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

diminishing marginal rate of substitution isoquants and returns to scale

isoquants and marginal returns

Isocosts slope and position of the isocost

A i t

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Unitsofca

pital(K)

Assumptions

PK = 20 000W= 10 000

TC= 300000

An isocost

0

5

1 0

1 5

2 0

2 5

3 0

0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0

A i t

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Unitsofca

pital(K)

TC= 300000

a

b

c

d

Assumptions

PK = 20 000W= 10 000

TC= 300000

0

5

1 0

1 5

2 0

2 5

3 0

0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0

An isocost

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ISOQUANT- ISOCOST ANALYSIS

Isoquants

their shape

diminishing marginal rate of substitution isoquants and returns to scale

isoquants and marginal returns

Isocosts slope and position of the isocost

shifts in the isocost

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ISOQUANT- ISOCOST ANALYSIS

Least-cost combination of factors fora given output

point of tangency

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2/14/13 Units of labour

Unitsofca

pital(K)

Assumptions

PK= 20000

W= 10 000

TC= 200000

TC= 300000

TC= 400000

TC= 500

000

production

0

5

1 0

1 5

2 0

2 5

3 0

3 5

0 1 0 2 0 3 0 4 0 5 0

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2/14/13 0

5

1 0

1 5

2 0

2 5

3 0

3 5

0 1 0 2 0 3 0 4 0 5 0

Units of labour

Unitsofca

pital(K)

TPP

1

TC= 400000

TC= 500000

r

s

t

-production

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ISOQUANT- ISOCOST ANALYSIS

Least-cost combination of factors fora given output

point of tangency

comparison with marginal productivityapproach

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ISOQUANT- ISOCOST ANALYSIS

Least-cost combination of factors fora given output

point of tangency

comparison with marginal productivityapproach

Highest output for a given cost ofproduction

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TPP

2

TPP

3

TPP

4

TPP5

Unitsofcapital(K)

Units of labour

O

TPP

1

total cost

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Isocost

Unitsofc

apital(K)

Units of labour

TPP

2

TPP

3

TPP

4

TPP5

TPP

1

total cost

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2/14/13 O

s

u

Unitsofc

apital(K)

Units of labour

TPP

2

TPP

3

TPP

4

TPP5

r

v

TPP

1

total cost

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O

K

1

L

1

Unitsofc

apital(K)

Units of labour

TPP

2

TPP

3

TPP

4

TPP5

r

v

s

u

TPP

1

t

total cost