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Create a graphical analysis of the cost-minimizing input mix and explain how it is affected by...

Create a graphical analysis of the cost-minimizing input mix and explain how it is affected by changes in relative prices of inputs.

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Cost minimization is used by the producers to determine how much inputs and outputs must be used so that there will be minimization of cost .The basic rule for the minimization of cost is MPL/w=MPK/r

The costs are minimised at the point where the marginal productivity of labor divided by the wages are equal to the marginal productivity of capital divided by the rental wages.When the inputs of production are not balanced MPL/w is greater than MPK/r

The graphical representation of minimizing cost is shown below.Firms will always seek to optimize the costs of production.The firm will take the prices of the given inputs and will produce the output by efficient combinations of the input.In the figure the cost minimizing combination is shown at the point E where there is tangency between two isocosts.

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