Figure 8A-4 Cost Minimization
In Figure 8A-4 , the isoquant and isocost maps are brought together. The
cost-minimizing method of production must be a point on an isoquant
that just touches (is tangent to) an isocost line. If the isoquant cuts the
isocost line, it is possible to move along the isoquant and reach a lower
level of cost. Only at a point of tangency is a movement in either direction
along the isoquant a movement to a higher cost level.
Cost minimization occurs at points of tangency between isoquant and
isocost lines. The isoquant map of Figure 8A-2 and the isocost lines of
Figure 8A-3 are brought together. Consider point A. It is on the 6-unit
isoquant and the $24 isocost line. Thus, it is possible to achieve the
output for a total cost of $24. There are other ways to achieve this
output, for example, at point B, where Moving along the
isoquant from point A in either direction increases cost. Similarly, moving
Q= 6
TC=$48.