If production technologies are homothetic, all cost-minimizing production plans lie on the same ray from the origin for a given set of input prices.

Question

Quizplus · Accepted Answer

This is because homothetic production technologies exhibit constant returns to scale, meaning that if all inputs are multiplied by the same factor, output will also be multiplied by the same factor. Therefore, the optimal input mix that minimizes cost will always involve the same proportionate use of inputs, leading to the same ray from the origin.

If Production Technologies Are Homothetic, All Cost-Minimizing Production Plans Lie