In the isoquant/isocost diagram (Figure 1), suppose the firm is producing 1,000 units of output at point A using 100 units of labor and 200 units of capital. As an outside consultant, what actions would you suggest to manage- ment to improve profits? What would you recommend if the firm were operating at point B, using 100 units of

In the isoquant/isocost diagram (Figure 1), suppose the firm is producing 1,000 units of output at point A using 100 units of labor and 200 units of capital. As an outside consultant, what actions would you suggest to manage- ment to improve profits? What would you recommend if the firm were operating at point B, using 100 units of

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

I understand why point A is not optimal but why is point B optimal when the isoquant curve is not tangent to the isocost line at point B?

1A.2 In the isoquant/isocost diagram (Figure 1), suppose the
firm is producing 1,000 units of output at point A using
100 units of labor and 200 units of capital. As an outside
consultant, what actions would you suggest to manage-
ment to improve profits? What would you recommend
if the firm were operating at point B, using 100 units of
capital and 200 units of labor?
Units of capital (K)
200
100
100
B
200
Units of labor (L)
q = 1,000
1
1

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