Increase in Wages and Increase in the Cost of Production - Coursework Example

If a firm, wants to maximize its profit it must choose its inputs effectively to minimize the cost of production. Its choice of production output depends on the environment in which it operates. However, whatever the firm's production output, the factors of inputs must be chosen to minimize the cost of production. Isocost line indicates combinations of all inputs resources whose cost is the same total amount, while an isoquant is a curve, which shows various combinations of capital and labor.

The use of the isocost line pertains to the minimization of cost in the production of the firm. The cost minimization situation of the firm is to choose a combination of input resources suitable for the desired output production that has the least cost. A production c minimizing input equation is a point on the isoquant for the given production function that is on the lowest point of the isocost line. The cost is minimal when the input combination is optimal. In the case of Mcdonald's, the choice of taking up automation is related to the increase in wages. An increase in wages results in an increase in the cost of production. This suggests that it must adopt automation to reduce the production cost to the minimum.