The isoquant is tangent to the isocost line characterizes the solution to a cost minimization problem with an interior solution

Question

Quizplus · Accepted Answer

This is because when the isoquant is tangent to the isocost line, the slope of the isoquant is equal to the slope of the isocost line. This condition is satisfied at the point where the cost is minimized for a given level of output. Therefore, this condition characterizes the solution to a cost minimization problem with an interior solution. When the isoquant is tangent to the isocost line, it indicates that the cost of producing the desired output is minimized. This occurs at the point of tangency, which is the optimal combination of inputs for producing the output. An interior solution means that the optimal combination of inputs does not lie on the boundary of the feasible region, which is the isocost line in this case. Therefore, the isoquant being tangent to the isocost line characterizes the solution to a cost minimization problem with an interior solution.

The Isoquant Is Tangent to the Isocost Line Characterizes the Solution