University Name: Economics for Strategic Decisions Production Report

This report examines production theory, focusing on isoquants and isocost lines within the context of strategic decision-making, as applied in an MBA program. It begins by explaining the importance of production theory for businesses, particularly in determining optimal output levels and input usage. The report delves into the concepts of isoquants, representing combinations of inputs (labor and capital) that yield the same output, and isocost lines, which illustrate the various combinations of inputs that can be purchased with a fixed budget. The student emphasizes the significance of cost minimization and profit maximization, highlighting how firms aim to achieve the most output from the least cost. The report includes figures illustrating isoquant curves and isocost lines, along with references to relevant academic sources to support the analysis. It concludes by underscoring the practical application of these economic principles in business decision-making.

Running Head: ECO FOR STRATEGIC DECISIONS
ECO FOR STRATEGIC DECISIONS
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1ECO FOR STRATEGIC DECISIONS
Table of Contents
Production Theory- Isoquants and Isocost Lines.......................................................................2
Reference....................................................................................................................................4

2ECO FOR STRATEGIC DECISIONS
Production Theory- Isoquants and Isocost Lines
I have selected this topic because I find this topic interesting and it can be used in
business decision-making, which could be helpful for me in future. The principles of
production theory are used most often by businesses for deciding how much each commodity
needs to be produced that is required to be sold and they also decide how much each kind of
the factors of production such as raw material, labor and others will be used. The business
organization uses this theory for finding out how maximum out can be obtained from the
given input, which is labor and capital.
The objective of bank is profit maximization. In short-run, if its total output remains
constant and if it is price taker, then its total revenue will be remained fixed. Hence, the only
way of maximizing profits is minimizing cost. The maximization of profit and minimization
of cost are two sides of same coin. Further, supply depends on the production cost. The
decisions regarding supply of extra units depends on marginal cost of production of that unit.
The most significant determinants of price-output decision of firm in any market is its
production cost (McWilliams et al. 2016).
The cost of firm depends on the two key factors, which are technical relationship
between outputs and input and the factor prices. The firm’s long-run production function
involves two factors usage, which are labor and capital that is represented by the isoquant or
equal-product curve. It is also termed as indifference curve of producer. It helps in tracing out
combinations of the two inputs that yield same output level. Isoquant is locus of the points
that shows all technically efficient ways of combining the factors of production for producing
fixed output level (Krivonozhko, Lychev & Kalashnikov, 2017). The example of this is as
follows:

3ECO FOR STRATEGIC DECISIONS
Figure 1: Isoquant Table and Curve
Isoquant shows what company desires to produce, but desire to produce commodity is
not sufficient. The producer needs to have sufficient capacity for buying required factor to be
able for reaching the desired level of production. Therefore, like consumer, the producer is
required to operate under budget, which is picturized by his budget line that is known to be
isocost line. It is the local of points that shows alternative combinations of the factors, which
can be purchased with the fixed money amount (Bridge & Dodds, 2018).
Figure 2: Isocost Line
Therefore, this topic is interesting because it plays significant role in decision making
of firm as budget line does in the decision-making of consumer. The differences between the
two is that consumer is having single line of budget that is determined by consumer income.
The rational firms try to combine different factors of production in such way that it helps in
giving maximum output from the minimum cost. Such combination is known as least cost
combination (Heathfield, 2016).

4ECO FOR STRATEGIC DECISIONS
Reference
Bridge, J., & Dodds, J. C. (2018). Managerial decision making. Routledge.
Heathfield, D. F. (2016). An introduction to cost and production functions. Macmillan
International Higher Education.
Krivonozhko, V. E., Lychev, A. V., & Kalashnikov, E. A. (2017). Constructions of input and
output isoquants for nonconvex multidimensional models. In Proceedings of the
OPTIMA-2017 Conference, Petrovac, Montenegro, October 2–7 (pp. 336-342).
McWilliams, A., Parhankangas, A., Coupet, J., Welch, E., & Barnum, D. T. (2016). Strategic
decision making for the triple bottom line. Business Strategy and the
Environment, 25(3), 193-204.