Afirm can use isoquants and isocosts to choose the most favorablecombination of inputs. The isoquant line presents the likelycombinations f two inputs that lead to the same output quantity. Afirm that uses the isoquants will have the isocosts showing the leastpossible costs that can develop a particular level of outputs. Itwould not be valid to assume that a firm is operating in a perfectlycompetitive market (Monaco, 2005). The reason behind this is, at anypoint in any market, the firm will always aim at reducing the cost ofproduction by maximizing profits. Firms apply Cobb-Douglas equationthat draws its concept from isocosts and isoquants to show therelationship between capital and labor (Lloyd, 2012). Firms apply itto determine the point at which a firm can optimally use itsresources for maximum production. The lack of perfect competitiondistorts the isocosts and the isoquants since the price of productsmay inflate beyond the actual costs. The tendency distorts theequilibrium (Biddle, 2012).
Mostfirms use graphical representations to present data in the reports.The graphics make it easy for stakeholders to draw conclusions sincethey are easy to follow. However, they have several limitations.First, the auditors use numbers and graphs to present the profitsaccrued in a given period. There is, therefore, the possibility ofmaking errors. The common person with no mathematical background maynot recognize the errors. Secondly, the graphical presentation bringsto light all the information regarding the earnings of a venture andit is, therefore, difficult to reserve some information asconfidential (Meeker & Escobar, 2014).
Graphicalrepresentations require some ethical consideration. When preparingthe graphs, the auditors should use the most appropriate method.Also, all the necessary information should be disclosed (Guragai etal., 2014). Graph interpreters should employ the use of tables andgraphs that represent information in a logical sequence for theaudience to follow with ease (Greenwood & Ogus, 2011).The simplecomparisons will lead to quick understanding of the information. Theyshould also avoid making too long to be comprehended by thestakeholders.
Biddle,J. (2012). Retrospectives: The Introduction of the Cobb–DouglasRegression. TheJournal of Economic Perspectives,26(2),223-236.
Guragai,B., Hunt, N., Neri, M., & Taylor, E. Z. (2014). AccountingInformation Systems and Ethics Research: Review, Synthesis, and theFuture. Synthesis,and the Future (October 20, 2014).
Lloyd,P. (2012). The Discovery of the Isoquant. Historyof Political Economy,44(4),643-661.
Meeker,W. Q., & Escobar, L. A. (2014). Statisticalmethods for reliability data.John Wiley & Sons: New York.
Monaco,K.A. (2005). Long-run input choices: isoquants and isocosts. LongBeach, CA: Worth Publishers
Vali,S. (2014). Production Function, Least-Cost Combination of Resources,and Profit Maximizing Level of Output. In Principlesof Mathematical Economics(pp. 311-346). Atlantis Press: New York.