Expansion Path

EXPANSION PATH

by Anton Antonio

March 25, 2015

Upland resources management also follows standard management and economic principles.  It is therefore equally important to be aware of the input combinations to use for optimal profitability which could be represented in a graph with an expansion path.

In economics, an expansion path (commonly called a scale line) is a curve in a graph with the quantities of two inputs, typically capital and labor, are plotted on the axes.  The path connects optimal input combinations as the scale of production expands.  The expansion path indicates the combination of two (or more) inputs that the upland business enterprise should choose in its cost outlay changes while prices of inputs remain the same.  It connects the different least cost combinations for different cost outlays.  The expansion path illustrates how output expands when other input prices remain the same or constant.  It further shows how the input combinations vary with a change in output or cost outlay.

Expansion path is the line formed by joining the tangency points between various isocost lines and the corresponding highest attainable isoquants.  When the production function is homogenous (meaning: similar or of the same kind) and factor prices are given, the expansion path is a straight line through the point of origin.  If the production function is not homogenous, the optimal expansion path will not be linear.

This management tool is important with the many products that can be produced in the upland.  There is no better way to decide on the inputs needed than the use of the expansion path.

Just my little thoughts…

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