A firm that is trying to produce a given level of output Q₀ at the lowest possible cost will

Question

Quizplus · Accepted Answer

The firm will select the input combination at which an isocost line is tangent to the Q₀ isoquant. This is because at the point of tangency, the firm will be using the least-cost combination of inputs to produce the desired level of output. If the isocost line is above or below the isoquant, there exists other input combinations that could produce the same output at a lower cost. Choosing to produce at a level where variable costs are less than or equal to fixed costs is not relevant to this question as it does not help to identify the most efficient input combination.

A Firm That Is Trying to Produce a Given Level