How to read this
Differentiating the first-order condition answers "what if" questions: a higher output price raises output, .
- Lower : the firm first substitutes towards input 1 at the old output (), then expands because production got cheaper (). So ordinary demand is flatter than conditional demand.
- The area to the left of between the two prices is the change in cost.
Technology
Returns to scale
Prices
Ordinary and conditional demand for input 1
ordinary demand curve ; conditional demand curves for the output before and after. The ordinary demand curve is flatter than the conditional ones: when falls the firm also expands output.