Kinh tế học vĩ mô - Chapter 10: Isocost / Isoquant Analysis

Isocost/Isoquant AnalysisChapter 10 AppendixIsocost/Isoquant AnalysisIn the long run, a firm can vary all of the factors of production.One important decision in the long run is which combination of factors to use?Economic efficiency involves choosing the factors so that the cost of production is at the minimum.Isocost/Isoquant AnalysisA graphical tool used in economics to analyze the long run choice of factors of production is the isocost/isoquant analysis.The Isoquant CurveAn isoquant curve (equal quantity) represents combinations of factors of production that result in equal amounts of output.The Isoquant Curve for 60 Earrings, Fig. A10-2, p 229Units of labourMachinesBAGCDFE(Q60)The Isoquant CurveThe rate at which one factor must be added to compensate for the loss of another factor is called the marginal rate of substitution.The slope of the isoquant curve is the marginal rate of substitution.The Isoquant CurveThe slope of the isoquant curve:Slope = MPlabour/MPmachines= MRSThe Isocost lineThe isocost line (equal cost) represents alternative combinations of factors of production that have the same cost.The slope of the isocost line equals the ratio of prices of the factors of production.The Isocost LineThe slope of the isocost curve:Slope = Plabour/PmachinesThe Isocost Lines, Fig. A10-4, p230Units of labourMachinesSlope = -Plabour/Pmachines=-5/36122018CDACombining Isoquant and Isocost Curves, Fig. A10-5, p 231Units of labourMachines2012CABMPlabour/Mpmachines =Plabour/PmachinesIsocost/Isoquant AnalysisEnd of Chapter 10 Appendix