ECONOMICS SLIDE

ISOQUANT

• Isoquants represent different combinations

of inputs that can produce the same level
of output
• They are used to analyze the production
possibilities and efficiency of a firm

Isoquant 2
 COSTS
• Variable Cost: Varies with the level
of production
• Fixed Cost: Remains constant
regardless of production level
• Total Cost: Sum of variable and
fixed costs
• Marginal Cost: Additional cost of
producing one more unit
• Average Total Cost: Total cost per
unit of output
• Average Variable Cost: Variable
cost per unit of output
• Average Fixed Cost: Fixed cost per
unit of output
Costs 3
 SHAPE OF COST CURVE

• Variable Cost and Total Cost curves are upward-sloping

• Fixed Cost curve is a horizontal line
• Marginal Cost initially decreases, reaches a minimum
point, and then increases
• Average Total Cost initially decreases, reaches a
minimum point, and then increases

Cost Curve 4
 R E L AT I O N S H I P B E T W E E N M C A N D AV C

• When the Marginal Cost decreases, the Average

Variable Cost also decreases, but the Average
Variable Cost curve stays above the Marginal Cost
curve
• The average cost is lowest when the Average Variable
Cost equals the Marginal Cost
• When Marginal Cost increases, the Average Variable
Cost increases as well, but the Marginal Cost curve
stays above the Average Variable Cost curve

MC & AVC 5