Assume the Market Depicted in the Graph Is in Equilibrium

question 61

Multiple Choice

Assume the market depicted in the graph is in equilibrium. If the price is subsequently set at $22, which of the following statements is true?
I. Some producers will gain surplus.
II. Some surplus will be transferred from producers to consumers.
III. Total surplus will fall.

• A)III only
• B)II and III only
• C)I and II only
• D)I, II, and III

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Definitions:

Variable Cost

A cost that varies with the level of output or activity, such as materials and labor costs.

Operating Leverage

A financial ratio that measures the degree to which a firm or project can increase operating income by increasing revenue.

Operating Income

The income earned from a company's day-to-day operations, calculated before taking into account interest and taxes.

Margin Of Safety

The difference between actual sales and break-even sales, providing a cushion against which sales can fall before a business incurs a loss.