What Is the Long-Run Consequence of a Price Floor Law

question 42

Multiple Choice

What is the long-run consequence of a price floor law?

• A) A surplus will continue to exist and will grow larger over time.
• B) A surplus will continue to exist and will grow smaller over time.
• C) A shortage will continue to exist and will grow larger over time.
• D) A shortage will continue to exist and will grow smaller over time.
• E) The amount of the surplus will not change.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed versus variable costs.

Break-Even Point

The financial point at which total costs and total revenue are equal, resulting in no net loss or gain.

Safety Margin

The amount by which a product's selling price exceeds its production cost, providing a buffer for profitability.

Cost Volume Profit Analysis

Cost Volume Profit Analysis is an accounting technique used to determine the effects of changes in costs and volume on a company's profits.