Expansion path
Encyclopedia
In economics
, an expansion path
(also called a scale line) is a line connecting optimal input combinations as the scale of production expands. A producer seeking to produce the most units of a product in the cheapest possible way attempts to increase production along the expansion path.
Economists Alfred Stonier and Douglas Hague defined expansion path as "that line which reflects least cost method of producing different levels of output, when factor prices remain constant." The points on an expansion path occur where budget level and the purchaser's indifference curve
are tangent
s. As a producer's budget level increases, each of these points can be connected in a line. A line joining tangency points of isoquants and isocosts (with input prices held constant). If an expansion path forms a straight line, the production technology is considered homoethetic. In this case, the ratio
is always the same, and the inputs can be adjusted based on this ratio for any budget. A Cobb–Douglas production function has an expansion path which is a straight line through the origin.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, an expansion path
Expansion path
In economics, an expansion path is a line connecting optimal input combinations as the scale of production expands...
(also called a scale line) is a line connecting optimal input combinations as the scale of production expands. A producer seeking to produce the most units of a product in the cheapest possible way attempts to increase production along the expansion path.
Economists Alfred Stonier and Douglas Hague defined expansion path as "that line which reflects least cost method of producing different levels of output, when factor prices remain constant." The points on an expansion path occur where budget level and the purchaser's indifference curve
Indifference curve
In microeconomic theory, an indifference curve is a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve...
are tangent
Tangent
In geometry, the tangent line to a plane curve at a given point is the straight line that "just touches" the curve at that point. More precisely, a straight line is said to be a tangent of a curve at a point on the curve if the line passes through the point on the curve and has slope where f...
s. As a producer's budget level increases, each of these points can be connected in a line. A line joining tangency points of isoquants and isocosts (with input prices held constant). If an expansion path forms a straight line, the production technology is considered homoethetic. In this case, the ratio
Ratio
In mathematics, a ratio is a relationship between two numbers of the same kind , usually expressed as "a to b" or a:b, sometimes expressed arithmetically as a dimensionless quotient of the two which explicitly indicates how many times the first number contains the second In mathematics, a ratio is...
is always the same, and the inputs can be adjusted based on this ratio for any budget. A Cobb–Douglas production function has an expansion path which is a straight line through the origin.