Figure

Isocost Curves

Each point on an isocost line represents a different combination of inputs that can be purchased at a given expenditure level.

Isocost Curves

Each point on an isocost line represents a different combination of inputs that can be purchased at a given expenditure level.

expansion path

Optimal input combinations as the scale of production expands

Suppose that a firm has only $1,000 to spend on inputs for the production of Q. Combining a set of production isoquants with the budget lines of Figure 7.8 to form Figure 7.9 indicates that the optimal input combination occurs at point A, the point of tangency between the budget line and a production isoquant. At that point, X and Y are combined in proportions that maximize the output attainable for an expenditure Br No other combination of X and Y that can be purchased for $1,000 will produce as much output. All other (X, Y) combinations along the budget line through (X1,Y1) must intersect isoquants representing lower output quantities. The combination (X1,Y1) is the least-cost input combination that can produce output Qr All other (X,Y) combinations on the Qj isoquant lie on higher budget lines. Similarly, X2,Y2 is the least-cost input combination for producing Q2, and so on. All other possible combinations for producing Qv Q2, and Q3 are intersected by higher budget lines.

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