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Examples and exercises on the output expansion path
Economics curves {{economics-stub
In economics
Economics () is the social science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analy ...
, an expansion path (also called a scale lineJain, TR; Khanna OP (2008). ''Economics.'' VK Publications, ) is a path connecting optimal input combinations as the scale of production expands.Hirschey, Mark (2008). ''Managerial economics.'' Cengage Learning, which is often represented as a curve in a graph with quantities of two inputs, typically physical capital
Physical capital represents in economics one of the three primary factors of production. Physical capital is the apparatus used to produce a good and services. Physical capital represents the tangible man-made goods that help and support the pro ...
and labor
Labour or labor may refer to:
* Childbirth, the delivery of a baby
* Labour (human activity), or work
** Manual labour, physical work
** Wage labour, a socioeconomic relationship between a worker and an employer
** Organized labour and the labour ...
, plotted on the axes. A producer seeking to produce a given number of units of a product in the cheapest possible way chooses the point on the expansion path that is also on the isoquant
An isoquant (derived from quantity and the Greek word iso, meaning equal), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. ...
associated with that output level.Prusty, Sadananda (2010). ''Managerial Economics.'' PHI Learning Pvt. Ltd.,
Economists Alfred Stonier and Douglas Hague
Sir Douglas Chalmers Hague (20 October 1926 – 1 February 2015) was a British economist who was a close associate of Margaret Thatcher.
Biography
Hague was born in Bramley, Leeds, to Laurence Hague, a municipal clerk and Marion (née Chalmer ...
defined “expansion path” as "that line which reflects the least–cost
In Production (economics), production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one o ...
method of producing different levels of output, when factor prices remain constant."Stonier, Alfred W.; Hague, Douglas C. (1980). ''A textbook of economic theory, 5th edition.'' Longmans The points on an expansion path occur where the firm's isocost curves, each showing fixed total input cost, and its isoquants, each showing a particular level of output, are tangent
In geometry, the tangent line (or simply tangent) to a plane curve at a given point is the straight line that "just touches" the curve at that point. Leibniz defined it as the line through a pair of infinitely close points on the curve. Mo ...
; each tangency point determines the firm's conditional factor demands. As a producer's level of output increases, the firm moves from one of these tangency points to the next; the curve joining the tangency points is called the expansion path.Salvatore, Dominick (1989). ''Schaum's outline of theory and problems of managerial economics.'' McGraw-Hill,
If an expansion path forms a straight line from the origin, the production technology is considered homothetic (or homoethetic).Rasmussen, Svend (2011). ''Production Economics: The Basic Theory of Production Optimisation.'' Springer, In this case, the ratio
In mathematics, a ratio shows how many times one number contains another. For example, if there are eight oranges and six lemons in a bowl of fruit, then the ratio of oranges to lemons is eight to six (that is, 8:6, which is equivalent to the ...
of input usages is always the same regardless of the level of output, and the inputs can be expanded proportionately so as to maintain this optimal ratio as the level of output expands. A Cobb–Douglas production function
In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly ...
is an example of a production function that has an expansion path which is a straight line through the origin.
See also
* Income-consumption curve, the closest analog in consumer theoryReferences
External links
Examples and exercises on the output expansion path
Economics curves {{economics-stub