Senator Hubris Wants to Pass a Law That Would Require

question 621

Multiple Choice

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would

• A)see their profits increase.
• B)break even.
• C)lose money.
• D)not really be affected by the law.

---

Definitions:

Price Ceiling

A legally established maximum price that can be charged for a good or service, often set below the equilibrium price to keep essential goods affordable.

Surplus

An excess of something, especially a quantity of a commodity or financial instrument that exceeds what is needed or used.

Equilibrium Price

The price at which the quantity of a good demanded equals the quantity supplied, leading to market balance.

Equilibrium Quantity

The amount of goods or services that is supplied and demanded at the equilibrium price.