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Cost of Production - Coggle Diagram

- - - - In the short run, output q2 can be produced only by increasing labor from L1 to L3 because capital is fixed at K1
  - - - Long-run average total cost rises as the quantity of output increases
      - Reason
        
        Coordination problems that are inherent in any large organization.
    - - Long-run average total cost stays the same as the quantity of output changes
    - - Long-run average total cost falls as the quantity of output increases
      - Reason
        
        Higher production levels allow specialization
- - - - All possible combinations of labor and capital that can be purchased for a given total cost
      - K = C/r − (w/r)L
    - - Isocost curve is tangent to isoquant and shows that output can be produced at minimum cost at the intercept point
      - When a firm minimizes the cost of producing a particular output, the following condition holds: MPL/w = MPK/r
      - When the price of one input increases, the firm will substitute another input for it in the production process
  - - - Choose an output level of an isoquant, then find the point of tangency of that isoquant with an isocost line
      - Determine the minimum cost respectively
      - Graph the output-cost combination