Question

_{If long run equilibrium price in a perfectly competitive market is $20 per unit. If government imposes a $18 per unit price ceiling and firms continue to produce a positive level of output, this implies that for firms after the price ceiling O Average variable cost is lower than $18 O Average total cost is lower than $18 OMarginal cost is lower than average variable cost. O Average fixed cost is lower than $18}

Answer 1

Answer : The answer is option A.

For perfectly competitive firms at long-run equilibrium price = marginal revenue = marginal cost = average total cost occur. The perfectly competitive firm shut down it's production when price is equal to average variable cost. Here $20 is the long run equilibrium price level. And at $18 price ceiling level the firm also produces a positive output level. This means that $18 price ceiling is higher than the average variable cost. Therefore, option A is correct.