I. It shows least cost combination for producing different level of outputs.
II. The input prices remain constant.
Of the above which statement is/are true ?
Answer from the codes given below :
Codes :
Understanding the Expansion Path
The expansion path of a firm illustrates how the optimal combination of inputs changes as the firm expands its output level. It's derived by connecting the points of cost minimization for each output level.
Statement I: Least Cost Combination
The expansion path is constructed by joining the points where the firm achieves the lowest possible cost for producing each successive level of output. This occurs where the isoquant (representing output) is tangent to the isocost line (representing the budget constraint). Therefore, the expansion path shows the least cost combination for producing different levels of outputs.
This statement is true.
Statement II: Constant Input Prices
A fundamental assumption when defining and deriving a single expansion path is that the prices of the inputs (e.g., labor and capital) remain constant. If input prices change, the slope of the isocost lines changes, leading to different cost-minimizing input combinations and potentially altering the path itself.
This statement is true.
Conclusion
Since both statement I (showing least cost combinations) and statement II (assuming constant input prices) accurately describe the expansion path, both are considered true.
Thus, the correct option is that both I and II are true.
Important Questions from Microeconomics
Which of the following statement is correct?
I. Indifference curves are sloping from left to right.
II. Higher indifference curve gives a higher level of utility.
If in a production process, all inputs are tripled, which of the following statements follows?
I. If the output is tripled, then decreasing returns to scale apply.
II. When the output is doubled, constant returns to scale apply.
III. If the output is more than tripled, then increasing returns to scale apply.
A market, in which there are a large number of firms, homogeneous product, infinite elasticity of demand for an individual firm and no control over price by firms, is termed as________.
If the two goods are substituted, then the indifference curve will be:
The government multiplier is given by (where c = MPC and t = tax rate)
