In the wage-employment model depicted, an isoprofit curve representing a profit of €3,000 is shown. This upward-sloping, concave curve is situated at a lower position on the graph than the curve for a €1,500 profit, illustrating that higher profit levels correspond to lower isoprofit curves.

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This diagram, referenced as both Figure 6.13 and Figure E6.3, visualizes the isoprofit curves for the language school's profit model. The curves connect combinations of wage (w) and employment (N) that yield equal profit, based on the formula `Profit = (800 - w) × N`. The diagram plots employment (0 to 80) against wage (400 to 850), showing upward-sloping, concave isoprofit curves for profits like €1,500, €3,000, and more. Higher profit curves are positioned lower. A zero-profit line is also depicted.

Figure 6.13/E6.3 - Isoprofit Curves for the Language School Model

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

In the wage-setting model, the zero-profit line represents combinations of wage and employment where the firm's economic profit is zero, marking the boundary of economic viability. For a firm where revenue per employee is €800, this line is composed of two segments: a vertical line along the wage axis from the origin (0, 0) up to (0, 800), which then becomes a horizontal line extending from that point onwards.

The Zero-Profit Line in the Wage-Setting Model

The position of an isoprofit curve on a wage-employment diagram indicates its associated profit level, a relationship derived from the isoprofit curve equation. For any given level of employment ($N$), a higher profit level ($\Pi_0$) can only be achieved with a lower wage ($w$). Consequently, isoprofit curves representing greater profits are located lower on the diagram, meaning they are situated further down in the figure.

Profit Levels and Isoprofit Curve Positions

An isoprofit curve illustrates the various combinations of employment and wages that yield an identical profit for a firm. For instance, a single upward-sloping, concave curve representing a profit of €1,500 connects several specific points. These labeled points include A (10 employees, €650 wage), B (40 employees, €762.50 wage), and C (75 employees, €780 wage), all of which result in the same €1,500 profit.

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