What is Iso-Cost Line?
Here we Understand the Concept of Iso-Cost Line in detailed.
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What is Iso-Cost Line?
Iso-cost line is a line which represents those combinations of labour and capital which are equal in terms of output.
An iso-cost line is also known as equal expenditure line. It is also a price-line showing price of one factor in terms of another.
For eg- Suppose the producer has 100 rupees to spend and the prices of capital and labour are Rs. 5 and Rs. 10 respectively. If the firm spends the entire amount on capital, it has a combination of 20 capital + 0 labour. Same way, if it spends the entire amount of labour, it has a combination of 0 capital + 10 labour. There are some other possible combinations of the factors showing equal expenditure. The following schedule would illustrate the point are as follows:
Combination Capital + Labour Total Expenditure
A 20 + 0 100
B 10 + 5 100
C 0 + 10 100
Figure:-
As shown in figure, Plotting the points A, B, C etc. We get line AC which is shown in figure, which is an iso-cost line. Every point on the iso-cost line shows various combinations with the same amount of expenditure. If the total outlay of the firm and the prices of the two factors are given, an iso-cost line indicates all possible combinations of the two factors which are available to the firm for production.
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Optimum Factor Combination- Iso-Cost Line.
Kinnari
Tech writer at NewsandStory