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EC2101 Isocost
EC2101 Isocost
EC2101 Isocost
VIDEO
ISOCOST
April 4, 2012
Recall: Short-Run vs. Long-Run Input
Choice
2
EC2101 Isocost
How to find out the opNmal L and K in the
long run?
3
EC2101 Isocost
Isocost
4
wL + rK = TC
¨ For example, suppose
¤ w=10, r=20
EC2101 Isocost
Isocost in Graph
5
K
Slope=-w/r=-0.5
250
100
A
TC = 5000
0 L
300 500
EC2101 Isocost
Higher Isocost, Higher Total Cost
6
K
350
300
250
TC = 7000
TC = 6000
TC = 5000
0 L
500
EC2101 Isocost
What if labor becomes more expensive?
7
K
Suppose w increases
from 10 to 20
250
TC = 5000
TC = 5000
0 L
250 500
EC2101 Isocost
What if w and r increase by the same
proporNon?
8
K
Suppose w=20 and r=40
250
125
TC = 5000
TC = 5000
0 L
250 500
EC2101 Isocost
Isoquant vs. Isocost
9
EC2101 Isocost