Technology and Costs

Isocost lines

Firms minimize costs by choosing the combination of inputs that lies on the isocost line that is closest to the origin.

The following tool allows you to enter the price of one hour of labor and one unit of electricity. It plugs these prices into the linear formula, which we calculated in the previous section, and plots four isocost lines. Remember, each isocost line corresponds to a different total cost. In which direction is total cost increasing? What happens to the slope of the isocost lines when input prices change? Change the input prices to help you answer these questions.

Isocost line

To reiterate, firms minimize costs by using a technology that falls on the isocost line closest to the origin. Go to the next tab to see how firms choose the optimal technology for each set of input prices.


The price of electricity is 10 dollars per unit and the hourly wage is $20. If the price of electricity increases to $15 and the wage remains the same, how does this affect the isocost lines?

  • The \(x\)-intercept changes
  • The \(y\)-intercept changes
  • The slope changes
  • The combinations of inputs change
  • Hourly wage is on the \(x\)-axis and it doesn’t change in this particular situation. Try again!
  • We are still working with the same technologies, but there is now a price change. Try again!