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Lecture

ECON 101 Lecture Notes - Isocost, Isoquant, Horse Length


Department
Economics
Course Code
ECON 101
Professor
Emanuel Carvalho

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Production in the long run
- Best factor combination
- Combination of inputs that will produce the firm’s desired level of output @ the lowest possible
cost *economically most efficient method of production)
- Identification of the best factor combination in the economically most efficient method of
production, involves combining the two concept isoquants and isocosts
Isoquant
- Is a curve representing various combinations of inputs capable of producing a constant level of
output
- Throughout the range of I1 is a constant level of output
- Each point on the isoquant I1 represents a combination of L + K capable of producing the
constant level of output
- Ex. Production function
o S = 
o S = 6, S= 8, S=10
S = 6
S = 6
S = 8
S = 8
S = 10
S = 10
L
K
L
K
L
K
36
1
64
1
100
1
18
2
32
2
50
2
12
3
16
4
25
4
9
4
8
8
20
5
6
6
4
16
10
10
4
9
2
32
5
20
3
12
1
64
4
25
2
18
2
50
1
36
1
100
o As we move away from the origin, each higher isoquant represents a higher level of
output
Isocosts
- Represents various combinations of input that a firm can acquire with its entire cost outlay
- For each cost outlay, there is a corresponding isocost line
Derivation of Isocost line
- Assume:
o Cost outlay is $1500
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