Izokosta is a line showing all available variants of a combination of two factors of production

In order to understand the chart and the isocost map, it is worth knowing more than one definition. This will help to learn to understand such a difficult science as microeconomics.

What is an isocosta?

Isokosta is a line that points toselection of resources, the use of which requires an equal amount of costs. It allows you to optimize profits at certain costs. On the graph, L is the labor factor, K is capital.

Properties of isocities

By properties of the isocost is similar to the line of the budgetlimitations. It has a negative slope, the degree of which is determined by its equation. The slope of the isokosta on the graph also depends on the ratio of prices for the factors of production. The location of the isocost depends on the level of the enterprise's income.

The isocost equation is C = Px * X + Py * Y. Here C is cost, Px and Py are the price of resources.

An isocost map is an image of two parallelStraight lines, also having a negative slope. Indicates theoretically possible resource samples that provide the company with the corresponding volumes of output.

The growth of production capital or a fall in the prices of resources (material, natural, labor, financial) shifts the isokostu to the right according to the schedule, while the budget reduction or the price increase is to the left.

According to the schedule, the most favorable for the given level of the economy of the enterprise is a sample of a set of factors.

If you combine the isocost and isoquant graphics, then the conclusion arises as to which path the manufacturer will choose to produce the volume of production that he needs.

Isoquanta is an infinite number of optionsa combination of factors of production, which provide the same amount of output. Optimal for the producer sample of resources, providing a lower threshold of costs, is at the point of contact isoquantum and isocost. This is called minimizing costs. That is, in order to determine the optimal position for the company, you need to connect the two lines. The optimum point shows the minimum cost of a combination of factors of production, which will be used to produce the right amount of products.

Izokosta. Production function

Production is the process of using resources, including human resources. The purpose of production is the satisfaction of consumers' demand for material and non-material goods.

The theory of material production describes the process of using production resources for processing into the final product.

By combining all the factors of production, a final benefit is created for productive and non-productive consumption and accumulation.

The outcome of any business depends oneffective use of production factors. It is this that reflects the production function that characterizes the dependence of the output of the finished product on the amount of resources expended.

The production function is the interdependence between the volume of output and the monetary costs of acquiring production factors.

Q = f (K; L)
Q - maximum volume of product release;
K, L - the cost of labor (L) and capital (K).

Q = f (K; L; M)
M - the cost of purchasing raw materials.

Q = f (kK^α; L^β; M^γ)
k is the scale factor;
α, β, γ are the elasticity coefficients.

Q = f (kK^α; L^β; M^γ... E)
E - factor of scientific and technological progress.

α + β + γ = 1%

α = 1%; β, γ = const

α, β, γ are the elasticity coefficients that show how Q changes when α + β + γ = 1%.

k - characterizes how proportionate the costs of acquiring factors of production.

This production function allows us to identify the main properties of production factors:

• interchangeability - the production process is possible with all the factors of production;
• complementarity.

The final result of production depends on the chosen combination of factors of production.

There is a limit to the growth of Q, provided that one factor of production is a constant value, and the second is a variable.

Q = f (K; L)

Q = f (x; y)

Q = ↑
x is the value of the variable, y-const.

This situation is called the law of diminishing productivity or the law of diminishing returns.

Costs

To determine the ways to minimize costs, you need to have an idea of ​​what it is and what types of costs exist. What is isocost of costs?

Economic costs are a costthe expression used in the production process of resources or factors of production. They are of an alternative nature, that is, each resource or factor of production implies a multivariate use.

Types of costs

Costs (costs) can be either explicit orimplicit. Explicit - the costs involved in the production process (for the purchase of raw materials and materials, components, electric power, for payment of wages to workers, for depreciation, etc.)

Implicit costs are costs that are indirectly involved in the production process - rent, advertising costs, etc.

In the short term, the following types of costs are distinguished:

• permanent (have an implicit nature) - FC (example - insurance premiums, maintenance costs of equipment);
• variables (directly involved in the production process) - VC;
• common - TC - all costs.

Total costs are equal to the sum of variables and fixed costs - TC = FC + VC.

According to the schedule: C - costs, Q - the volume of production.

In the formation of general costs, variable costs are of particular importance.

When making managerial decisions, average costs are particularly important. This type of cost involves the calculation of the unit of output, that is, the average values.

The marginal cost (MC) shows the change in total costs due to volume changes.

The marginal revenue (MR) shows the change in income from the change in volume.

Producer maximization conditions

Profit is the goal of any production thatcharacterizes its effectiveness. It depends on many factors: resources, costs, output, a combination of factors of production. The manufacturer tries to maximize its profits in order to obtain more income from its entrepreneurial activities.

Equality of marginal costs and marginal costs is a prerequisite for maximizing the producer's profit.

MR = MC

Let's say that additional output is associated with an increase in costs. If the manufacturer does not have income from previous sales, production volumes are temporarily reduced.

Thus, it can be concluded that isocost is a line that indicates equal costs.