With Reference to the Graph Above,if the Intended Aim of the Price

question 113

Multiple Choice

With reference to the graph above,if the intended aim of the price ceiling shown was a net increase in the well-being of consumers,then positive analysis would conclude:

• A)the policy was effective,since area A + C is larger than B + D.
• B)the policy was effective,since area B is smaller than area D.
• C)the policy was ineffective,since D is larger than E.
• D)the policy was ineffective,since A + C + D is larger than B + E.

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance.

Average Revenue

Total revenue divided by the number of units sold, indicating the average income per unit of output.

Marginal Revenue

Marginal revenue is the additional income received from selling one more unit of a good or service, critical for decision-making in resource allocation.

Monopoly Price

The price set by a monopolist, which is typically higher and produces lower output than would be the case in a competitive market.