refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-If the isoprofit line shifts from line 1 to line 2,then:
A)to maintain profit level 2,the firm must provide more fringe benefits and reduce wages
B)to maintain profit level 2,the firm must reduce fringe benefits and raise wages
C)as the firm moves from line 1 to line 2,it could provide more fringe benefits while paying the same wage rate
D)providing more fringe benefits would reduce the firm's profit

Question

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-If the isoprofit line shifts from line 1 to line 2,then:
A)to maintain profit level 2,the firm must provide more fringe benefits and reduce wages 
B)to maintain profit level 2,the firm must reduce fringe benefits and raise wages 
C)as the firm moves from line 1 to line 2,it could provide more fringe benefits while paying the same wage rate 
D)providing more fringe benefits would reduce the firm's profit

Quizplus · Accepted Answer

The shift from line 1 to line 2 in an isoprofit line scenario typically indicates a change in the trade-off between two factors (in this case, wages and fringe benefits) while maintaining the same level of profit. If the firm can move to line 2 and provide more fringe benefits without changing the wage rate, it suggests that the new line (line 2) represents a set of combinations of wages and fringe benefits that are more efficient or cost-effective for maintaining the same profit level. This does not inherently mean that providing more fringe benefits reduces profit (as suggested in option D) or that wages must be adjusted in a specific way (as suggested in options A and B); rather, it indicates a change in the efficiency or possibilities for the firm's compensation strategy while maintaining profit levels.

Refer to the Diagram Below