Answer to Question #130871 in Microeconomics for Ahmad

Question

What is meant by an expansion path? Illustrate expansion paths for a normal input and an inferior input.

Answer 1

The firm's expansion path tells us whether the firm's resources are conventional or secondary.

Costs are normal costs if the firm increases its share in the structure of production as production increases. On the other hand, secondary resources are resources whose share decreases as the firm switches to other resources at a higher level of production. The expansion path deviates from the lower entrance, that is, it has a negative slope. But in the case of a normal entry, the expansion path has a positive slope.