ISO cost line
ISO cost line is the locus of some points, which represents same cost in every combination of the factors. In detail iso-cost line shows various combinations of two factors, which can be purchased with a given amount of total money.
Suppose a producer wants to spend Tk. 300 on factor x and y. If the price of the factor ys T. 3 per unit and the price of the factor x is Tk. 5 per unit. With Tk. 3 per unit he can purchase 100 (OA) unit of y and no factor x or with Tk. 5 he can purchased 60 (OM) unit of factor x and no factor y. By jointing points A and M we set a line which is called iso cost line.
ISO cost line is the locus of some points, which represents same cost in every combination of the factors. In detail iso-cost line shows various combinations of two factors, which can be purchased with a given amount of total money.
Suppose a producer wants to spend Tk. 300 on factor x and y. If the price of the factor ys T. 3 per unit and the price of the factor x is Tk. 5 per unit. With Tk. 3 per unit he can purchase 100 (OA) unit of y and no factor x or with Tk. 5 he can purchased 60 (OM) unit of factor x and no factor y. By jointing points A and M we set a line which is called iso cost line.
Fig. ISO-Cost lineIn the above diagram the horizontal axis i.e. ox axis represents factor x and the vertical axis i.e. oy axis represents factor y. Am is the ISO cost line.
ISO cost lien AM on which will lie all those combinations of factors x and y which can be purchased with Tk. 300. The ISO cost line is also known as price line or outlay line.
0 Comments Here::
Post a Comment