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Eric Doviak Principles of Microeconomics Notes on Isoquants, Isocosts and the Memo on Land Value Taxation In Lecture 6, I used isoquants and isocosts to analyze profit-maximization. This is not strictly correct. The point of tangency between an isoquant and an isocost line illustrates the point where cost is minimized for a given level of output. It is not necessarily the point where a firm maximizes its profit. Obviously, a firm cannot be maximizing its profit unless it’s minimizing cost, but the reverse is not necessarily true. The difference occurs because: x cost minimization – occurs when the firm minimizes the cost of producing a given level of output x profit maximization – occurs when the firm minimizes the cost of producing the level of output which maximizes its profit. Ƈ Ƈ Ƈ asset returns – the case of perfect substitutes Imagine that you have the opportunity to buy shares of two equally risky stocks.
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