Determination of the Least-Cost Production Process

The tangency between the isoquant and isocost lines at point B3 reveals the least-cost combination of inputs. Units of L employed

The tangency between the isocost curve and the isoquant curve for Q = 3 at point B3 indicates that process B, which combines inputs L and K in the ratio 5 to 1, is the least-cost method of producing Q. For any expenditure level, production is maximized by using process B. Alternatively, process B is the least-cost method for producing any quantity of Q, given the assumed prices for L and K.

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