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In order to determine the best combination of capital and labor to produce that output, one has to know the amount of finance available to the producer to spend on the inputs and also the prices of the input. Suppose that the producer has at its disposal Rs. 10,000 for the two inputs, and that the prices of the two inputs as Rs. 1000 per unit of capital and Rs. 200 per unit of labor. The firm will have three alternative possibilities before it .
a) To spend the money only on capital and secure 10 units of it .
b) To spend the amount only on labor and secure 50 unit of labor
c) To spend the amount partly on capital and partly on labor .
The factor price line is also known as isocost line because it represents various combinations of inputs that may be purchased for the given amount of money allocated . The slope of the factor price line shows the price ratio of capital and labor i.e.. 1:5.
By combining the isoquant and the factor price line , one can find out the optimum combination of factors which will maximize output .
Equal product curves IQ1 , IQ2 , and IQ3 represents output of 1000 units , 2000 units and 3000 units respectively . AB is the factor price line . At point E the factor-price line is tangent to isoquant IQ2 representing 2000 units of output . Point E indicates the maxi- -mum amount of capital and labor which the firm can combine to produce 2000 units of output . The isoquant IQ3 falls outside the factor price line AB and therefore cannot be chosen by the firm . On the other hand , Isoquant IQ1 will not be preferred by the firm even though between R and S it falls within the factor price line .Points R and S are not suitable because output can be increased without increasing additional cost by the selection of a more appropriate input combination . Point E , therefore ,is the ideal combination which maximizes output or minimizes cost per unit , it is the point at which the firm is in equilibrium .
What else can I help you with?
What is a least-cost combination?
A least-cost combination refers to the optimal mix of resources or inputs that minimizes costs while achieving a specific level of output or meeting production requirements. In economics, it often involves selecting different factors of production—like labor and materials—in a way that balances cost efficiency with productivity. This concept is essential for businesses aiming to maximize profit by reducing expenses without sacrificing quality. Ultimately, it helps in making informed decisions about resource allocation.
Is use of least-cost input combination a necessary condition for profit maximization is it a sufficient condition explain?
1. Minimization of Cost for a Given Level of Output: Least Cost Conditions
The amount of money that a firm pays to buy inputs is called?
Total cost
How can one derive a cost function from a production function?
To derive a cost function from a production function, you can use the concept of input prices and the production technology. By determining the optimal combination of inputs that minimizes cost for a given level of output, you can derive the cost function. This involves analyzing the relationship between input quantities, input prices, and output levels to find the most cost-effective way to produce goods or services.
Perfectly competitive firm in long run equilibrium?
what about them? profits are 0 price=marginal cost all costs are variable optimal allocation of inputs is where marginal rate of technical substitution is equal to the price ratio of the inputs.
What is iso cost line?
the combination of two different inputs which costs the same amount..
What is isocost?
isocost is really aline that demonstrates the combination of inputs that can be used however each combination has the same cost
What is the meaning of cost of inputs?
its when you have it with someone hhahhahhaha
What is the optimal combination of inputs and its formula?
optimum combination of input
Does all inputs need to be used in order for HDMI switcher to work?
No. At least two inputs are the mimimum that makes a switcher viable, but unused inputs can always be left disconnected.
Is use of least-cost input combination a necessary condition for profit maximization is it a sufficient condition explain?
1. Minimization of Cost for a Given Level of Output: Least Cost Conditions
Describe what productive efficiency means?
Productive efficiency is achieved when goods and services are produced at the lowest possible cost, using the most efficient combination of inputs. It is a state in which a firm produces at the lowest point on its average cost curve, maximizing output for a given level of inputs. Products are produced on the production possibility frontier, ensuring that resources are allocated efficiently.
The amount of money that a firm pays to buy inputs is called?
Total cost
Difference between Nor and Nand gate flip flops?
NAND is Not AND, meaning that if both inputs are true, the output is false.Any other combination (Including 0 0) does not change the output and it remains true. It's the opposite of AND, in which both inputs must be true for the output to be true.NOR is Not OR. If at least one input is true, the output will be false.It's the opposite of OR, where the output is true if at least one input is true.The main difference is that NOR requires at least oneinput being true to make the output false, where NAND requires both to be true.
What is the difference between implicit and explicit theory?
explicit is the market value of all inputs purchased by a producer while implicit cost is the market value of inputs owned by the producer himself.
What is optimal input substitution?
Optimal input substitution refers to the process of determining the most efficient way to allocate inputs to maximize output, while minimizing costs. This involves finding the right combination of inputs to produce a given level of output at the lowest possible cost, taking into account input prices and output levels. This concept is often utilized in production decisions to achieve cost savings and improve profitability.
Productivity is the ratio of and .?
Total factor productivity is the ratio of total value added and the total cost of inputs.
