The slope of the isoquant also represents the market exchange rate between capital and labor. In other words it gives us the rate at which labor and capital can be substituted for one another while maintaining constant total costs.

    In most market situations the firm has no control over the slope of the isocost lines it faces. These are determined by factor prices which arise from the interaction of supply and demand in factor markets. It can choose however the lowest isocost line which allows it to produce the desired level of output.

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