A product has a contribution margin of $2.50 per unit and a selling price of $25 per unit. Fixed costs are $20,000. Assuming new
1 answer:
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Answer:
1. False
2. Shortage; Larger
Explanation:
1. A binding price ceiling is one that prevents the market from reaching its equilibrium. In this market, the equilibrium price is $25 therefore anything below $25 will be binding. A price ceiling below $25 per box is a binding ceiling.
2<em>. Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a </em><em><u>shortage</u></em><em> that is </em><em><u>larger</u></em><em> in the long run than in the short run.</em>
In the long run, supply is more sensitive because farmers can decide to plant oranges on their land, to plant something else, or to sell their land altogether.
This means that a price ceiling in the long run will be less attractive to farmers so they might leave the market. If they do this then the shortage will be more as there are now less supplies in the market.
