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The least-cost combination of factors for producing a given output occurs at the point where:
Athe isoquant cuts the iso-cost line twice
Bthe iso-cost line meets the vertical axis
Ctwo isoquants intersect each other
Dthe isoquant is tangent to an iso-cost line
Answer & Solution
Correct answer: D. the isoquant is tangent to an iso-cost line
1. Producer's equilibrium is found by superimposing the chosen isoquant on the iso-cost lines.
2. Cost is minimised at the point where the isoquant is tangent to an iso-cost line; all other points on the isoquant lie on higher iso-cost lines.
3. So the least-cost combination is the tangency point.
4. An isoquant cutting the line twice means a costlier point, isoquants never intersect, and the axis intercept is just a corner combination, not the optimum.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit I "Theory of Production", p.24_
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