Figure 4-17 Refer to Figure 4-17. Suppose a Price Ceiling of $4.50

question 129

Multiple Choice

Figure 4-17
Refer to Figure 4-17. Suppose a price ceiling of $4.50 is imposed. As a result,

• A) there is a shortage of 15 units of the good.
• B) the demand curve will shift to the left so as to now pass through the point (Q = 35, P = $4.50).
• C) the situation is very much like the one created by a binding minimum wage.
• D) the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.

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Definitions:

P < AVC

A condition where the price (P) of a good is less than the average variable cost (AVC), indicating a firm is not covering its variable costs and may cease production in the short run.

Average Total Cost

Average Total Cost is the total cost of production divided by the quantity produced, encompassing both fixed and variable costs.

Profit-maximizing

A process or strategy that firms employ to determine the price and output level that leads to the highest profit.

Short Run

A period during which at least one factor of production is fixed and cannot be changed, influencing a firm's capacity to alter production levels.