The Isocost Line



The isocost line is an important component when analysing producer’s behaviour. The isocost line illustrates all the possible combinations of two factors that can be used at given costs and for a given producer’s budget. In simple words, an isocost line represents a combination of inputs which all cost the same amount.

Now suppose that a producer has a total budget of Rs 120 and and for producing a certain level of output, he has to spend this amount on 2 factors A and B. Price of factors A and B are Rs 15 and Rs. 10 respectively.

Combinations

Units of Capital

Units of Labour

Total expenditure

Price = 150Rs

Price = 100 Rs

( in Rupees)

A

8

0

120

B

6

3

120

C

4

6

120

D

2

9

120

E

0

12

120





The isocost line shows all the possible combinations of two factors Labour and capital.

6 comments:

jerry iornegen said...

how can i use the same method to produce a product?

Unknown said...

When the price of an input falls,what will happen to the isocost?

Anonymous said...

when the price of one of the inputs falls the foot of the isocost will shift rightwards

Unknown said...

I didn't understood the table given.

Anonymous said...

some mistakes are there in the table and also in text

Ben Miller said...

There are no mistakes in the table.
KIndly double check.