In order to solve graphically for an interior cost minimum of the firm, subject to the constraint of producing a particular target level of output, we:
A)shift in the isocost line as much as possible.
B)shift out the isoquant as much as possible.
C)shift the isocost line left as much as possible subject to the constraint that it touches the target isoquant at least once.
D)shift the isoquant left as much as possible subject to the constraint that it touches the target isocost at least once.

Question

Quizplus · Accepted Answer

To find the interior cost minimum, we need to find the point where the isocost line is tangent to the target isoquant. This means we want to shift the isocost line left as much as possible while still touching the target isoquant at least once. This point of tangency will represent the level of input usage and corresponding cost that minimizes cost while still producing the desired output level. To solve for an interior cost minimum, we want to find the point at which the isocost line is tangent to the highest attainable isoquant. Shifting the isocost line as far as possible or shifting out the isoquant as much as possible do not necessarily lead to an interior cost minimum. Thus, the correct choice is to shift the isocost line left as much as possible subject to the constraint that it touches the target isoquant at least once. This will give us the point of tangency and the corresponding optimal combination of inputs.

In Order to Solve Graphically for an Interior Cost Minimum