Superimposed on the isoquant for 10,000 cases of seeds in Figure 10 is a set of isocost curves. Isocosts represent different levels of expenditures by your firm for various combinations of labor and capital when the price of labor is $1,000 per unit and the price of capital is $1,000 per unit. These isocosts are close relatives of the consumer budget lines .

 

            Just as the slope of the budget line in consumer indifference curve analysis reflects the prices of the two goods considered (-Pa/Pb), the slopes of isocosts reflect the prices of the resources considered (-w/k), where w is the wage rate and kis the unit cost of capital). Notice that production process a (L = 9, K = 1) yields total costs of $10,000, which lies on the TC = $10,000 isocost curve. As Figure 10 illustrates, 10,000 cases of seeds can be packaged at a minimum cost of $6,000 using three workers and three machines (point c). Graphically, costs are minimized for a given level of output where the isocost curve is just tangent to the isoquant, for an output level of 10,000 packages. At this point, MPPL/MPPK= w/k.

 

            This is similar to the tangency between consumer indifference curves and budget lines in which maximum satisfaction is attained for a given budget. Recall that this point conformed to the principle of equal marginal utilities per dollar: MUa/Pa= MUb/Pb or MUa/MUb   = Pa/Pb. Thus, in accord with the principle of equal marginal productivities per dollar, our result that MPPL/w  = MPPK/k or MPPL/MPPK    = w/k means that minimizing costs requires the marginal payments to resource owners to be in accord with the resource's contribution to production.

 

            One final note: Just as there are numerous isocost curves that represent different levels of cost, there are also numerous isoquants for production levels other than 10,000 packages. We have simplified the analysis by assuming that you expected 10,000 packages of seeds per season to be the most profitable level of output.