22. The following diagram shows the market d curves of the producer firm, and th

Question

22. The following diagram shows the market d curves of the producer firm, and the firm's profit function curve. Based on the graph, which of the following statements are correct? Select all correct answers emand curve of Apple Cinnamon Cheerios, the isoprofit The highest profit that the firm can make is $60,000. The profit-maximising choice for the firm is where the highest attainable isoprofit curve is tangent to the demand curve. The profit-maximising choice for the firm is where its marginal rate of substitution between the price charged and the quantity produced is equal to its marginal rate of transformation. The profit-maximising choice for the firm is at the peak of its profit function curve. a. b. c. d. 10 Isoprofit curve: $60,000 Isoprofit curve: $34,000 Isoprofit curve: $23,000 Isoprofit curve: $10,000 Isoprofit curve: $0 Demand curve 0 8,000 16,000 24,000 32,000 40,000 48,000 56,000 64,000 72,000 80,000 50,000 40,000 0,000 20,00. 10,000 a. 80,000 10,000 20,000 Quantity Q: pounds of Cheerios

Explanation / Answer

22. Ans. b. The profit maximising choice for the firm is where the highest attainable isoprofit curve is tangent to the demand curve.

Here the demand curve plays a role as constraint. It means the producer can not go beyond the line. It means the producer will want to maximize the profit keep into the mind the demand curve of the product. So, given the constraint how can a producer maximise the level of profit. Higher isoprofit curve shows higher level of profit. Here the highest attainable isoprofit curve for the producer is the where isoprofit curve tangent with demand curve. Here in the figure that isoprofit curve which denotes the profit level of $34000.

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