The point of tangency between an isoquant and the isocost line indicates:
A)that in the long run fixed costs are equal to variable costs.
B)the maximum cost incurred for producing one unit of output.
C)that in the long run marginal costs tend to exceed fixed costs.
D)the minimum cost necessary to produce a particular level of output.

Question

Quizplus · Accepted Answer

The point of tangency between an isoquant and the isocost line represents the minimum cost necessary to produce a particular level of output. At this point, the firm is using the optimal combination of inputs that minimizes its cost of production while producing the desired level of output. Therefore, the correct answer is D, the minimum cost necessary to produce a particular level of output.

The Point of Tangency Between an Isoquant and the Isocost