What is Isorevenue line?
Just as a production possibility curve indicates various combinations of two products that can be produced by using the same amount of the variable input (x1), an iso-revenue line shows all possible combinations of two products which would yield the same total revenue.
What is the slope of the Isorevenue line?
The slope of an isorevenue line is a constant ratio of the two output prices. If y2 appears on the vertical axis and y1 on the horizontal axis, the slope of the isorevenue line is the negative inverse output price ratio, ! p1/p2. The term isorevenue means equal revenue.
How do you graph an ISO-revenue line?
How do we graph the iso-revenue line? First, pick a level of revenue if it isn’t given. Second, find the y intercept by dividing the revenue level by the price of the good on the y axis. Third, find the x intercept by dividing the revenue level by the price on the x axis.
Where the ISO-revenue line is tangent to the production possibility curve that is point?
The main feature of point P (as is clear from the diagram) is that at this point, one of the iso-revenue lines is tangent to the given production possibility curve. In other words, the slope of the production possibility curve at this point is the same as the slope of the iso-revenue line.
What is Isocline in economics?
An isocline is a curve that starts from the origin and passes through the isoquant map of the firm, and along which the marginal rate of technical substitution of input X for input Y, i.e., the numerical slope of the isoquants is constant.
What is an isoquant line?
An isoquant curve is a concave line plotted on a graph, showing all of the various combinations of two inputs that result in the same amount of output. Most typically, an isoquant shows combinations of capital and labor and the technological trade-off between the two.
What is an Isoquant line?
What does the slope of an Isocost line show?
The isocost line represents all combinations of capital and labor that have the same total cost. The slope of the isocost line represents the relative prices of the inputs, labor and capital. When the price of one changes relative to the price of the other, the line does not shift, but the slope changes.
How is Isoprofit line calculated?
The equation of any isoprofit curve can be written as P=MC+k/Q. So if k>0, then P>MC, which means that the slope is always negative.
What is Isorevenue curve?
A curve showing the combinations of two or more variables that generate the same level of profit for a firm.
What is total revenue maximum condition?
In other words, the profit maximizing quantity and price can be determined by setting marginal revenue equal to zero, which occurs at the maximal level of output. Marginal revenue equals zero when the total revenue curve has reached its maximum value.
How do you draw an ISO revenue line?
An iso-revenue line for any total revenue can be easily draw by determining the extreme points on the axes of coordinates and connecting these points with a straight line. In Fig. 26, the pint on Y-axis is determined by the value TR/PY 1 and that on the X-axis is determined by the value TR/ PY 2.
What does the slope of an isocost line mean?
The slope of the isocost line represents the relative prices of the inputs, labor and capital. When the price of one changes relative to the price of the other, the line does not shift, but the slope changes. In the lower panel on the far left, the price of capital has increased relative to labor, making labor relatively cheaper.
How to calculate the isocost line for a firm?
The isocost line is a firm’s budget constraint when buying factors of production. To calculate the isocost line for a firm, begin with the total cost equation, TC = (W x L) + (r x K)and solve for K. W= wages, L =labor, r = the rent(what you pay for the use of capital), and K = capital.