Exhibited in the table below are the two isoquants and the isocost for a hypothetical firm ABCDEFLabor4028181040Capital123456Labor803828201410Capital123456 Labor (P2/unit)2520151050Capital(P5/unit)0246810In a single graph, please perform the following:A. Draw the Isoquant curveB. Draw the isocostC. Identify the optimal point which is tangent to the isoquant line. Please mark the spot as X.D. How many units of capital and labor is the optimal combination

Answered: isoquants and the isocost

Business

Economics

isoquants and the isocost

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter11: The Firm: Production And Costs

Section: Chapter Questions

Problem 7P

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Concept explainers

Isocost and Isoprofit Curve Analysis

An isocost curve in the production theory that is a crucial part of economics depicts different combinations of factor inputs at a given market cost. In other words, this shows all the combinations of production factors that cost the same for the firm to employ. Usually, this can be depicted as a downward sloping straight line when the firms act as the price-takers in the factor markets. The slope of this mainly depicts the relative prices of different production factors.

Question

Exhibited in the table below are the two isoquants and the isocost for a hypothetical firm

	A	B	C	D	E	F
Labor	40	28	18	10	4	0
Capital	1	2	3	4	5	6
Labor	80	38	28	20	14	10
Capital	1	2	3	4	5	6

Labor (P2/unit)

Capital

(P5/unit)

In a single graph, please perform the following:

A. Draw the Isoquant curve

B. Draw the isocost

C. Identify the optimal point which is tangent to the isoquant line. Please mark the spot as X.

D. How many units of capital and labor is the optimal combination

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