Links to all courses

The locus of optimum input combinations for different level of cost is called the expansion path. Two inputs are typically capital & labour plotted on the axes. A producer employs both the input in proportion that is economically most efficient.

Expansion path is determined by the points of tangency between the isocost & isoquant. In other words, factor price ratio must be equal to MRTS. i.e.

r1/r2 = MP1/MP2 = f1/f2

Fig-1: Expansion path for homogeneous production function

Fig-2: for non-homogeneous production function

**Expansion Path:**The locus of optimum input combinations for different level of cost is called the expansion path. Two inputs are typically capital & labour plotted on the axes. A producer employs both the input in proportion that is economically most efficient.

Expansion path is determined by the points of tangency between the isocost & isoquant. In other words, factor price ratio must be equal to MRTS. i.e.

r1/r2 = MP1/MP2 = f1/f2

Fig-1: Expansion path for homogeneous production function

Fig-2: for non-homogeneous production function

## No comments:

Write comments