# Producer S Equilibrium Pdf Creator

A profit maximisation firm faces two choices of optimal combination of factors inputs. Thus the least cost combination of factors refers to a firm producing the largest volume of output from a given cost and producing a given level of output with the minimum cost when the factors are combined in an optimum manner.

We study these cases separately.

In the theory of production, the profit maximisation firm is in equilibrium when, given the cost-price function, it maximises its profits on the basis of the least cost combination of factors. For this, it will choose that combination which minimizes its cost of production for a given output.

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This will be the optimal combination for it. Given these assumptions, the point of least-cost combination of factors for a given level of output is where the isoquant curve is tangent to an iso-cost line. In Figure 17, the iso-cost line GH is tangent to the isoquant at point M.

At this point, the firm is minimising its cost for producing units. Any other combination on the isoquant , such as R or T, is on the higher iso-cost line KP which shows higher cost of production.

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The iso-cost line EF shows lower cost but output cannot be attained with it. Therefore, the firm will choose the minimum cost point M which is the least-cost factor combination for producing units of output.

## Producer's Equilibrium (Hindi)

M is thus the optimal combination for the firm. There are two essential or second order conditions for the equilibrium of the firm:.

The first condition is that the slope of the iso-cost line must equal the slope of the isoquant curve. The slope of the iso-cost line is equal to the ratio of the price of labour w to the price of capital r i. The second condition is that at the point of tangency, the isoquant curve must he convex to the origin.

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In other words, the marginal rate of technical substitution of labour for capital MRTS LC must be diminishing at the point of tangency for equilibrium to be stable.

In Figure 18, S cannot be the point of equilibrium, for the isoquant IQ 1 is concave where it is tangent to the iso-cost line GH. At point S, the marginal rate of technical.