In the preceding chapter we saw that economically efficient production occurred where the isocost is tangential to the isoquant. The expansion path of the firm traces the locus of these points and illustrates the optimum input combinations for different output levels. If we retain the assumptions of a two-input production function, Q = f(K, L) and constant input prices, we may readily move from the expansion path to the cost function, relating the level of costs to the level of output.
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- A. A. Alchian, ‘Costs and Outputs’: see note 5, p. 244 below. Joel Dean, Managerial Economics (Englewood Cliffs, N.J.: Prentice-Hall, 1951) chap. 5.Google Scholar
- Milton Friedman, The Theory and Measurement of Long Run Cost’, reprinted in The Theory of the Firm, ed. G. C. Archibald (Harmondsworth: Penguin Books, 1973). pp. 44–52.Google Scholar
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