Isoquant and Isocost

ISOQUANT AND ISOCOST

by Anton Antonio

March 21, 2015

The combination of upland products considered for production and marketing is important in maximizing profitability in any upland business endeavour.  Perhaps, maximizing the utilization of land also takes precedence considering that land is finite and limited.  This, however, does not mean sustainable development (meaning:  the ability of the present generation to provide for their needs without compromising the ability of future generations to provide for their own needs) should be thrown out of the window.

In the determination of exactly what products to be produced, an input-input relationship case of production could be used.  This will help determine the following:

• The combination of two inputs that will minimize production cost when the output level is fixed, given the prices for the inputs; and,
• The combination of two inputs that will produce the highest output is the cost outlay (meaning: budget) is fixed, given the prices for the inputs.

A graph (meaning: a diagram showing the relation between variable quantities, typically two variables, each measured along one of a pair of axes at right angle) is the most effective tool that will provide guidance to managers in determining the product mix.

Isoquant (Greek word “iso” meaning: “equal”) is a curve that shows different combinations of two inputs that will result in the same level of output.  In economics, an isoquant is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs.  Isocost, on the other hand, is a line that shows the combinations of two inputs that the budget can afford, given the cost outlay and the prices of the two inputs.  The isocost line is combined with the isoquant line to determine the optimal production point at any given level of output.

Again, graphs and diagrams with their isoquants and isocost, are just tools to provide guidance in deciding on the quantity and type of products that needs to be produced.  This is the importance and significance of an isoquant and isocost.

Just my little thoughts…

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