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2 years ago

Explain how a Target price for farm crops is an example of a price floor.

1 answer:

8 0

Answer: A target price for farm crops is an example of price floor because it’s fixed ahead of harvests with the interest of farmers in mind.

Explanation: A quick definition of both concepts would be of help. A price floor is usually fixed by government legislation and it ensures that the price of a commodity or service does not fall below a certain minimum. In the case of farm crops, a floor price makes sure that the farmers are guaranteed a level of profit in case there is poor harvest for any reason whatsoever. The price floor must be fixed above the equilibrium price for this to be effective.

A target price is an expectation of the future price of commodities or services, and hence prices are fixed ahead of the harvest in the case of farm crops. This is so because as explained earlier, future conditions might change and become unfavorable, therefore making the current market price unprofitable for farmers. If for example, a sack of potatoes currently sells for $30, the government may fix the price floor ahead of the harvest season at $45 per sack. This implies that after harvesting farmers can still sell at $30. However if the harvest turns out to be bad perhaps due to natural disasters, pests or fungal attacks, etc, then the farmers can go ahead and sell at $45 and possibly higher. No farmer is allowed to sell below $45 (since that is the ‘floor’). That way, farmers would still have some profit guaranteed and would be encouraged to remain in the farming business.

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Available options are:

A. All of the choices are correct.

B. Average fixed costs would increase.

C. Marginal costs would increase.

D. Average variable costs would increase

Answer:

Option B. Average fixed costs would increase.

Explanation:

As the variable cost is the same which means that the marginal cost (All variable costs) would neither increase nor the average variable cost (Average variable cost due to fluctuating variable cost) would increase. Hence both Option C and D are incorrect.

Option B is correct because:

Average Fixed cost = (Initial Value + Value Now) / 2

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2 years ago

Variable costs as a percentage of sales for Lemon Inc. are 74%, current sales are $697,000, and fixed costs are $178,000. How mu

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Answer:

Effect on income= $12,038 increase

Explanation:

Giving the following information:

Variable costs as a percentage of sales for Lemon Inc. are 74%

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2 years ago

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

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Learn more about journal entry here:brainly.com/question/14279491

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1 year ago

Explain how a Target price for farm crops is an example of a price floor.​

Explain how a Target price for farm crops is an example of a price floor.