Chapter 8, Problem 1DQ

In the graph below, you can see the iso-cost curve and the iso-quant curve for the firm to produce q = 1000 units of output. Note that the vertical axis shows the quantity of capital while the horizontal axis shows the quantity of labor.  Suppose that the firm is producing 1000 units of output at point A, using 200 units of capital and 100 units of labor.  (i) As an outside consultant, what actions would you suggest to management to improve profits?  (ii) What would you recommend if the firm were operating at point B, using 100 units of capital and 200 units of labor? Explain your answer.

What two lines determine whether a firm is making positive or negative or zero profits?

The firm depicted by the graph below is producing q0 level of output. Given its costs, is the firm producing at the profit-maximizing/loss minimizing level of output?  Briefly explain why or why not.