Suppose That the Market for Cigarettes Is Initially in Equilibrium

question 25

Multiple Choice

Suppose that the market for cigarettes is initially in equilibrium and is perfectly competitive.The demand curve can be expressed as ; the supply curve can be expressed as Quantity is expressed in millions of boxes per month.Now suppose that the federal government imposes a production quota on cigarettes of 30 million boxes per month.What is the change in producer surplus (per million boxes) associated with the quota?

• A) $275.
• B) $75.
• C) $50.
• D) $25.

---

Definitions:

Market Price

The market's present quote for the purchase or sale of assets and services.

Acquisition

The process by which one company takes over another, either through purchase of its shares or assets.

Net Present Value

A calculation used to determine the value of an investment by considering the present value of its expected future cash flows and initial cost.

Cash Acquisition

A takeover strategy where the acquiring company buys another company's ownership stakes using cash as the mode of payment.