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Show how a firm determines the optimal combination of factors of production.
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One of the most important decisions a firm has to make involves the determination of the optimal combination of factors of production. This is because this is essential for the firm to reach the profit maximising point where marginal cost equals to marginal revenue. In order to reach this point, especially if the firm operates in a perfectly competitive market it has to produce where its factors of production cost as little as possible and produce as more as possible. In other words it has to minimise costs while maximising output. The above illustrates some of the firm's possible factor...
that a firm determines the optimal combination of factors of production by determining the point of tangency between its isoquant and isocost curves and we have illustrated this both by using diagrams and by illustrating it mathematically using Lagrange multipliers. Also I have shown how frequently firms in the real world don't use the above analysis when determining the optimal combination of factors of production because it is too complicated and they often prefer cheaper less time consuming ways to determine the optimal combination of factors of production as it's a routine they have to go through very frequently.
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