GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Profits only
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Equilibrium output only
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Equilibrium output and profits
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Average revenue in the short-run only
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Detailed explanation-1: -The ceiling price is the maximum price limit and is usually set below the equilibrium price for some essential commodities to save the life of lower income group from inflating prices in a monopoly market. Therefore, it affects the equilibrium output and profits of the firm in monopoly market. “
Detailed explanation-2: -Price ceilings that involve a maximum price below the market price create five important effects: Shortages, Reduction in Product Quality, Wasteful Lines and Other Search Costs, Loss of Gains from Trade & Misallocation of Resources.
Detailed explanation-3: -The ceiling price is binding and causes the equilibrium quantity to change – quantity demanded increases while quantity supplied decreases. It causes a quantity shortage of the amount Qd – Qs. In addition, a deadweight loss is created from the price ceiling.