The figure to the left shows the isoprofit curves and demand curve for Cheerios breakfast cereal. Draw a diagram to show how the figure would change in each of the following cases. To make sketching the curves easier, assume the demand curve is linear. In each case, can you say what would happen to the price and the profit? a) A rival company producing a similar brand slashes its prices. b) The cost of producing Apple-Cinnamon Cheerios rises to $3 per pound. c) General Mills introduces a local advertising campaign costing $10,000 per week.
The figure to the left shows the isoprofit curves and demand curve for Cheerios breakfast cereal. Draw a diagram to show how the figure would change in each of the following cases. To make sketching the curves easier, assume the demand curve is linear. In each case, can you say what would happen to the price and the profit? a) A rival company producing a similar brand slashes its prices. b) The cost of producing Apple-Cinnamon Cheerios rises to $3 per pound. c) General Mills introduces a local advertising campaign costing $10,000 per week.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Price, P (dollars per pound)
10
0
QUESTION 5: COST STRUCTURES
Feasible set
20,000
40,000
60,000
Quantity of Cheerios, Q (pounds)
● Isoprofit curve: $60,000
● Isoprofit curve: $34,000
Isoprofit curve: $10,000
Isoprofit curve: $0
Demand curve
80,000
The figure to the left shows the isoprofit curves and
demand curve for Cheerios breakfast cereal.
Draw a diagram to show how the figure would change
in each of the following cases. To make sketching the
curves easier, assume the demand curve is linear. In
each case, can you say what would happen to the
price and the profit?
a) A rival company producing a similar brand
slashes its prices.
b) The cost of producing Apple-Cinnamon
Cheerios rises to $3 per pound.
c) General Mills introduces a local advertising
campaign costing $10,000 per week.
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VIEWStep 2: a) A rival company producing a similar brand slashes its prices.
VIEWStep 3: b) The cost of producing Apple-Cinnamon Cheerios rises to $3 per pound.
VIEWStep 4: c) General Mills introduces a local advertising campaign costing $10,000 per week.
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