The isoquant isocost combination the isoquant

The Isoquant-Isocost Combination
The isoquant represents what can be produced while the isocost curve defines the cost and budgetary limits of
production. The optimum resource combination for a given plant capacity is a least-cost condition. At the
optimum point A, the last peso spent on one resource yields the same marginal product as on the other
resource.
The optimum purchase combination is at point A since the given isocost curve corresponds (tangent) to the
highest isoquant and level production capacity that its budget can buy. In the foregoing optimum condition,
one resource is as marginally efficient as the other. More use of capital from point A goes beyond the limits of
a fixed labor input and makes both resources inefficient as they com plement each other.
Change in Resource Mix/ Change in Relative Resource Price
Figure 45 illustrates how a variation in relative resource prices can change the optimum resource combination
from point A. The isocost curve becomes steeper from B to B, as labor becomes costlier while capital
cheapens. Maintain ing resource combination with more of less efficient labor at point A now corresponds to a
lower output level.
Change in Relative Efficiency
Optimally resource combination favors the use of cheap and efficient inputs to maximize production. This
explains why industrialized countries use capital-intensive technology to solve their problem of scarce labor
resources. The same principle explains why developing countries use labor intensive technology to take
advantage of their abundant and cheap labor.
Productivity
This section discusses the dynamics of resource effiency as it affects produvtion. Succeeding chapters will also
highlight its impact on the firm competitiveness and survival
Concepts
Productivity is the efficiency and, there fore, the power of inputs to produce. This sec- tion confines
discussions to resource inputs which are basic to production. Productivity is measured as output per unit.

Advantages
Productivity improvement means more output per unit of input or with the same total input as the increase in
the effiency ratio. A bigger plant is not necessarily more eff cient than its smaller counterparts. A clase may
best the rest in a school fund drive by the sheer number of soliciting members. But the most efficient class has
the biggest amount solicited by very number which reflects on individual initiative.
Productivity is not an end but a means to compete and survive in the free market. In Figure 39, plant use is
most efficient at the turning points of the MP and AP curves before diminishing returns. An overall
improvement in resource efficiency is eco nomically viable but only when additional output is also
proportionate to the additional cost of efficiency.