Multiple choice

The producer is in equilibrium at a point where the cost line is

  1. above the isoquant

  2. below the isoquant

  3. cutting the isoquant

  4. tangent to isoquant
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Producer equilibrium occurs at the tangency point between the isocost line (cost line) and isoquant (output curve). At tangency, the producer achieves the maximum possible output for a given cost, or minimizes cost for a given output level. Above, below, or cutting are not equilibrium positions.

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