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A Note on the Short Run Expansion Path for the Firm

Jones, Clifton T. and Thompson, Mark A., "A Note on the Short Run Expansion Path for the Firm" (October 2004). Available at SSRN:


    There is some confusion about the nature of the short run expansion path for the firm as presented in many intermediate microeconomics textbooks. The traditional view is that the short run expansion path (SREP) is a horizontal line since capital is fixed. However, this approach ignores the firm's ability to use less than (but not more than) the amount of capital it is stuck with in the short run. We show that the traditional horizontal SREP is still valid when one allows the firm to reduce its capital for output reductions in the short run.
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