Suppose a manager's preferences depend only on profit. 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) is tangent to 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's preferences depend only on profit. 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) is tangent to 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

Since the manager's preferences depend only on profit, the indifference curve is tangent to the profit curve at the point where the marginal rate of substitution between quantity and profit equals the slope of the profit curve. This occurs at the quantity where profit is maximized, which is 2.5 in this case. Therefore, the indifference curve is tangent to the profit curve at a quantity exactly equal to 2.5.

Suppose a Manager's Preferences Depend Only on Profit