10. If a firm enjoys economies of scale up to a certain output level, and cost then increases proportionately with output, what can you say about the shape of the long-run average cost curve? When the firm experiences economies of scale, its long-run average cost curve is downward sloping. When costs increase proportionately with output, the firm’s long-run average cost curve is horizontal. So this firm’s long-run average cost curve has a rounded L-shape; first it falls and then it becomes horizontal as output increases. 11. How does a change in the price of one input change the firm’s long-run expansion path The expansion path describes the cost-minimizing combination of inputs that the firm chooses for every output level. This combination depends on the ratio of input prices, so if the price of one input changes, the price ratio also changes. For example, if the price of an input increases, the intercept of the isocost line on that input’s axis moves closer to the origin, and the slope of the isocost line (the price ratio) changes. As the price ratio changes, the firm substitutes away from the now more expensive input toward the cheaper input. Thus the expansion path bends toward the axis of the now cheaper input. 12. Distinguish between economies of scale and economies of scope. Why can one be present
