Which of the following is true of the expansion path?
A)It always slopes upward.
B)It slopes upward as long as input prices are constant.
C)It slopes upward as long as the firm uses more of both inputs as output increases.
D)It is always linear,but not necessarily upward-sloping.

Question

Quizplus · Accepted Answer

The expansion path represents the combinations of inputs that minimize cost at every level of output. Therefore, if the firm is using more of both inputs as output increases (i.e. exhibiting increasing returns to scale), the expansion path will slope upward. Option A is not always true as the expansion path could potentially be horizontal or even sloping downward if the firm is experiencing decreasing returns to scale. Option B is not completely accurate because the slope of the expansion path depends on the relationship between output and the prices of both inputs, not just input prices in isolation. Option D is incorrect as the expansion path can be curved if the inputs have different substitution rates or if the production function has non-linear properties.

Which of the Following Is True of the Expansion Path