What causes upward shift in isocost line?

When the firm decides to increase the total money to be spent on purchase of inputs while prices of the inputs remain the same, the producer becomes able to afford such combinations of inputs which were initially unattainable to him. This causes isocost line to shift to a new position higher to the initial line.

How will an isocost line change if there is an increase in the price of one input but not the other?

If one input price increases, while the others remain the same then the slope of the isoquant changes. If the price of input 1 increases, for example, the slope of every isocost line increases. If the isoquants are not smooth then the optimal input bundle may remain the same as the input price changes.

What happens when the price of input changes and cost changes on graph and slope of isocost line?

The middle graph on the left shows the original isocost line. The slope of the isocost line represents the relative prices of the inputs, labor and capital. When the price of one changes relative to the price of the other, the line does not shift, but the slope changes.

Will the slope of the isocost line always change if the price of factors of production changes?

The line connecting these two points is the isocost line. The slope is -w/r which represents the relative price. Only the point in the isocost line shows the combination that can be purchased exactly at the given cost . If the prices of the t factors change, the isocost line will also change .

What is producer’s equilibrium?

Producer’s equilibrium refers to a situation where profits are maximised, i.e., the difference between total revenue and total cost is maximised, or in cases losses, the difference is minimised, so as to minimise losses.

Why is isoquant convex to the origin?

Isoquants are convex to the origin This is because of the operation of the principle of diminishing marginal rate of technical substitution. MRTS is the rate at which marginal unit of an input can be substituted for another input making the level of output remain the same.

Why is ISO cost line downward sloping?

The isoquants slope downward because both labour and capital have positive marginal products. More of either input increases output; so if output is to be kept constant as more of one input is used, less of other input must be used.

What is the relationship between isoquant and isocost?

An isoquant shows all combinations of factors that produce a certain output. An isocost show all combinations of factors that cost the same amount.

What caused the shift of ISO cost line on the Y axis?

If a firm decides to spend more money on production, its isocost line shifts outwards/rightwards parallel to the original isocost line. It is because more budget allows the firm to simultaneously employ more capital and labor at the same time. Such a change in slope rotates the isocost line.

How a producer strikes his equilibrium?

A producer strikes his equilibrium at that level of output, where profit is maximised. It is only when (a) MR = MC, and (b) MC is rising, these two conditions are satisfied, then a producer will reach the point of his equilibrium and maximising his profit.

What is an isoquant curve explain producer equilibrium with the help of isoquant curve?

Answer: Isoquant curve shows combinations of inputs employable to produce a certain output. Isocost lines portray cost combinations of two inputs like capital and labour which produce the same amount of output.

Why is the isoquant curve downward sloping?

Property 1: An isoquant curve slopes downward, or is negatively sloped. This means that the same level of production only occurs when increasing units of input are offset with lesser units of another input factor. This property falls in line with the principle of the Marginal Rate of Technical Substitution (MRTS).