EXERCISE 7.1 CHANGES IN THE MARKET E Draw diagrams to show how the curves in gure 7.5a would change in each of the following cases: 1. A rival company producing a similar brand slashes its prices. 2. The cost of producing AppleCinnamon Cheerios rises to $3 per pound. 3. A wellpublicized government study shows that General Mills' products are healthier than other breakfast cereals. 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? 10 . Isoprofit curve: $60,000 . Isoprofit curve: $34,000 . Isoprofit curve: $10,000 . Isoprofit curve: $0 . Demand curve Price, P (dollars per pound) OH NW AUTO VOOD Feasible set 0 20,000 40,000 60,000 80,000 Quantity of Cheerios, Q (pounds) FULLSCREEN The profit-maximizing choice The manager would like to choose a combination of Pand Qon the highest possible isoprofit curve in the feasible set. Figure 7.5a The profit-maximizing choice of price and quantity for Apple-Cinnamon Cheerios