BECM-161(EM) 2025-26

Diagram (verbal description): Imagine labor on the horizontal axis and capital on the vertical axis. A convex (to the origin) isoquant curve intersects a downward sloping straight isocost line. The tangency point is marked “E” — the equilibrium. If the firm operated above the tangency, it would use too much capital; below it, too much labor. Only at “E” is cost minimized for that output. This point also represents the least‐cost combination of factors. If the firm changes the total cost, the isocost line shifts, and a new tangency occurs at a different isoquant corresponding to a different level of output.