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A curve connecting the tangency points is called the expansion path because it shows how the input usages expand as the chosen level of output expands. In economics , an expansion path (also called a scale line [ 1 ] ) is a path connecting optimal input combinations as the scale of production expands. [ 2 ]
Equivalently, it gives the maximum level of output that can be produced for a given total cost of inputs. A line joining tangency points of isoquants and isocosts (with input prices held constant) is called the expansion path. [3]
In economics and particularly in consumer choice theory, the income-consumption curve (also called income expansion path and income offer curve) is a curve in a graph in which the quantities of two goods are plotted on the two axes; the curve is the locus of points showing the consumption bundles chosen at each of various levels of income.
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The main reason for the increasing returns to scale is the increase in production efficiency due to the expansion of the firm's production scale. A firm's production function could exhibit different types of returns to scale in different ranges of output.
The expansion path of the industrial sector is given by the line OA o A 1 A 2. As capital increases from K o to K 1 to K 2 and labor increases from L o to L 1 and L 2 , the industrial output represented by the production contour A o , A 1 and A 3 increases accordingly.
A family of isoquants can be represented by an isoquant map, a graph combining a number of isoquants, each representing a different quantity of output.An isoquant map can indicate decreasing or increasing returns to scale based on increasing or decreasing distances between the isoquant pairs of fixed output increment, as output increases. [7]
Two input Leontief Production Function with isoquants. In economics, the Leontief production function or fixed proportions production function is a production function that implies the factors of production which will be used in fixed (technologically predetermined) proportions, as there is no substitutability between factors.