How to read this
The surface is profit over all input bundles: its peak is the one step answer. The blue ray is the expansion path, the cheapest bundle for each output (Step 1); the red curve is profit along it (Step 2). Both peaks are the same point: .
- Press ▶ Show the two steps: Step 1 draws the expansion path; Step 2 slides along it to the best output.
- Change or : the two answers move together.
Technology
Returns to scale
With a price taker has no unique profit maximum (profit grows without bound, or with and the right price every output earns zero): see the Cost Curves and Supply tool.
Prices
Layers
Profit
one step: at the peak; expansion path on the floor and the profit along it, lifted onto the surface. The red curve passes through the peak.
Step 1 in the input space
Isoquants for ( in blue), the isocost lines that touch them, and the expansion path through all the tangency points.
Step 2: profit along the expansion path
, highest at ; the grey line is the outside option 0.