Suppose a manager views both quantity and profit as "goods." Such a manager will then have an indifference curve that:
A) is tangent to the profit curve somewhere between quantities of 0 and 2.5.
B) is tangent to the profit curve somewhere between quantities of 2.5 and 5.
C) intersects the profit curve at a quantity exactly equal to 2.5.
D) intersects the profit curve at a quantity exactly equal to 5.

Question

Suppose a manager views both quantity and profit as "goods." Such a manager will then have an indifference curve that: 
A) is tangent to the profit curve somewhere between quantities of 0 and 2.5. 
B) is tangent to the profit curve somewhere between quantities of 2.5 and 5. 
C) intersects the profit curve at a quantity exactly equal to 2.5. 
D) intersects the profit curve at a quantity exactly equal to 5.

Quizplus · Accepted Answer

An indifference curve shows the combinations of two goods that provide equal satisfaction to a decision-maker. In this case, the manager views both quantity and profit as goods. Therefore, the indifference curve will be tangent to the profit curve at the point where the manager is indifferent between two different quantities that generate the same level of profit. As the question states, the manager values both profit and quantity, so the indifference curve will be upward-sloping (higher quantity is preferred to lower quantity). Since the profit curve is downward-sloping, the indifference curve will intersect it at a point where the quantity is high (to satisfy the manager's desire for quantity) and the profit is also high (to satisfy the manager's desire for profit). This point of tangency is between quantities of 2.5 and 5, as shown in the graph. Therefore, the correct answer is B.
 
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Suppose a Manager Views Both Quantity and Profit as "Goods