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Unit 3, Law of Returns to scale, Producer’s Equilibrium, Stages, Isoquant…
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Law of Returns to scale
In the long run, all factors can be changed.
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Producer’s Equilibrium
Producer’s equilibrium occurs when he earns maximum profit with optimal combination of factors which is represented by Iso quant and Iso cost
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Factors of Production
Fixed Factors
A fixed factor of production is one whose quantity cannot readily be changed. Examples include major pieces of equipment, suitable factory space, and key managerial personnel.
Variable Factors
A variable factor of production is one whose usage rate can be changed easily. Examples include electrical power consumption, transportation services, and most raw material inputs.
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Long Run
Isoquant
soquant is a curve that shows efficient combinations of labor and capital that can produce a single or equal (iso) level of output (quantity).
Isocost
Iso cost on the other hand, describes the various combinations of cost of capital and labor input that can be employed at a given cost limit.
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An isoquant shows all combination of factors that produce a certain output.
An isocost show all combinations of factors that cost the same amount.
