Answer to Question #132324 in Microeconomics for Ahad Ahmed

Question

Appreciate the isocost-isoquant analysis. What do you mean by producer’s equilibrium with motive of Profit maximization using the least cost method of production?

Answer 1

An isoquant shows all combination of factors that produce a certain output. An isocost show all combinations of factors that cost the same amount. Isocosts and isoquants can show the optimal combination of factors of production to produce the maximum output at minimum cost.

Production at least cost requires the ratio of labor's marginal product to its price equals the ratio of capital's marginal product to its price.