Answer to Question #145400 in Finance for Suman

Question

Using map of isoquants and isocosts show the role of relative input prices and relative productivities in the determination of least cost combination

Answer 1

Isoquants are represented as Q1 and Q2,which shows a larger output. Along Q1, output remains unchanged for any combination of factors of production (labor and capital) - points J, B, H.

The Slope from J to B indicates the maximum level of substitution when one factor of production can be replaced by another.

Isocosts are represented as TC1 and TC2. Point B shows the lowest total cost for a combination of labor and capital factors to produce the quantity of output Q1.