Expansion path

Expansion path


Expansion path is the locus of equilibrium points that are derived from different ISO-QUANT curve and ISO-cost line. It can be explained by following diagram.

Fig: Expansion Path

In the above diagram ox axis represents factor X and OY axis represents factory Y. Three ISO-cost lines IC1, IC2 & IC3 are drawn which show different levels of total cost. All ISO-cost lines are parallel to one another indicating that the price of the two factors remain the same.
If the firm wants to produce the output level denoted by IQ, then it will choose the factor combination P which minimizes the cost of production. P is the point of tangency between the ISO-QUANT curve IQ, and the ISO-cost line IC1.

Now, If a firm wants to produce a higher level of output denoted by the ISO-QUANT curve IQ2. It will then choose the factor combination Q, which is the least cost combination for the new product. Q is the point of tangency between the equal product / ISO-QUANT IQ2 and the ISO-cast line IC2.

Again if a firm wants to produce a higher level of output denoted by the iso QUANT IQ3 then it will choose the factor combination R. Which is the least cost combination for new output. R is the point of tangency between the iso QUANT IQ3 and the iso cost line IC3.
If we join these points P, Q, R we get a path which is called the Expansion Path. It is also known as scate line.

The producer will expand his production through this path.