Abstract
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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Further reading
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.
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.
G. J. Stigler, ‘The Economies of Scale’, Journal of Law and Economics, vol. 1 (1958) 54–71.
For an empirical study of the cost-output relationship see L. Cookenboo Jr, ‘Costs of Operation of Crude Oil Trunk Lines’, in Crude Oil Pipelines and Competition in the Oil Industry (Cambridge, Mass.: Harvard University Press, 1955) pp. 8–32,
reprinted in Price Theory, ed. H. Townsend (Harmondsworth: Penguin Books, 1971) pp. 193–215.
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© 1979 Julian Gough and Stephen Hill
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Gough, J., Hill, S. (1979). Costs. In: Fundamentals of Managerial Economics. Palgrave, London. https://doi.org/10.1007/978-1-349-16225-3_9
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DOI: https://doi.org/10.1007/978-1-349-16225-3_9
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