The objective of factor-factor relationship is two fold: 1 Minimization of cost at a given level of Output. The next minimum cost is 6, and there is a tie between three cells. This movement involves no extra cost because the firm remains on the same iso-cost line. To get the level of output produced we substitute these amounts of capital and labour in the given production function. With the feeds like grain without processing when incorporated with dry forages may not provide nutrients to meet requirement as they would pass as such from digestive tract. This is found whore Iso-quant and Iso-cost lines tangent to each other.
The optimum input combination in this case is known as the least cost combination of inputs. The condition of optimal combination is, therefore, given by the equality of the ratio of prices between any two factors and the rate of technical substitution between them. Chery, maize +cow pea and concentrate mix. Point E , therefore ,is the ideal combination which maximizes output or minimizes cost per unit , it is the point at which the firm is in equilibrium. The conditions for the equilibrium of the firm are the same, as discussed above. Maximum Output Combination of Inputs. So, the other name for iso-cost line is factor-price line.
There is perfect competition in the factor market. With a concave isoquant, we have corner solution point e3 in Fig. It is the curve along which output or expenditure changes, when factor prices remain constant. The cost outlay is given. At these points, marginal rate of technical substitution is equal to the price ratio of the factors and the producer would be maximising the output or minimising the cost using the factor combination in this manner. If it is cheaper for the factory to install a scrubber, move, or stop operations than it is for the residents to move to a new location or otherw … ise avoid the pollution, then the factory is the least cost avoider. An Isoquant represents the different combinations of two variable inputs used in the production of a given amount of output.
At point S, the marginal rate of technical. Solution Least-cost combination factor needs that the following situation must be met. Therefore these lines represent the limits of economic relevance. And Notesgen truly give you that opportunity in the real sense of the word. The Iso- cost lines are straight 3. A profit maximisation firm faces two choices of optimal combination of factors inputs.
This will be the optimal combination for it. Both the producer and the consumer purchase things in such quantities as to equate marginal rate of substitution with the price ratio. What does the point of tangency tell us? The nutritionist must use their skill and knowledge in such a case for balancing the ration. It is an iso-cost line because it represents various combinations of inputs that may be purchased for the given amount of money allotted. Thus, e2 is the point of stable equilibrium, where isoquant is at a higher level and it is convex. As total outlay increases, the Iso- cost line moves higher and higher away from the origin.
Therefore, processing of ingredients and forages is needed to meet the requirement through balanced ration. Therefore, the firm will choose the minimum cost point M which is the least-cost factor combination for producing 200 units of output. Only 40 units are left with the source C. This analysis is based on the same assumptions, as given above. Inclusion of feed ingredients with the flexibility of program as per availability and quality is made speedily possible. In the theory of production, a producer will be in equilibrium when, given the cost-price function, he maximizes his profits on the basis of the least-cost combination of factor. The slope of the iso-quant reflects the marginal rate of technical substitution.
Check out Ronald Coase and Guido Calabresi for more. This approach of breaking down a problem has been appreciated by majority of our students for learning Effectiveness stipulation, Least-cost combination factor concepts. Attaining maximum profit would be possible by use of least cost ration throughout the year by linear programming. The firm aims at profit maximization. The slope of the factor price line shows the price ratio of capital and labor i.
Therefore it may be defined as an economic ration for dairy cow which provides nutrients in balanced proportion with lowest possible cost. Imputes the cost of feed ingredients. Such a combination is referred to as the least cost combination. In this way, the producer maximises his profits and produces a given level of output with least cost combination of factors. If not must it use more labour and less capital or less labour and more capital? Thus the least cost combination of factors refers to a firm producing the largest volume of output from a given cost and producing a given level of output with the minimum cost when the factors are combined in an optimum manner. Online Optimum Input Combination Help: If you are stuck with an Optimum Input Combination Homework problem and need help, we have excellent tutors who can provide you with Homework Help. The behaviour of the producer in choosing the quantities of factors is exactly symmetrical with the behaviour of the consumer.