Suppose that the market for pizzas in your town is perfectly (or purely) competitive, with a market price of $14 per pizza in long run equilibrium, A local pizza restaurant, Pizzazzy, signs a one-year lease in a new building in town and continues selling pizzas at this price. People in your town view Pizzazzy pizzas as the same as other pizzas. Suppose that a couple of months after the new pizza restaurant opens, the local government institutes a $8 per pizza price ceiling. If you buy a S8 pizza from Pizzazzy a week later (and assuming Pizzazzy is behaving rationally), what do you know about the marginal cost, average total cost, and average variable cost at the profit maximizing point of production after the price ceiling is imposed? Answer Bank marginal cost no higher than $8 no higher than $14 but definitely higher than $8 average total cost higher than $14 no higher than $14 but maybe higher than S8 average variable cost

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ISBN:9781337617390
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Chapter5: Supply, Demand, And Price: Applications
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Suppose that the market for pizzas in your town is perfectly (or purely) competitive, with a market price of $14 per pizza in long
run equilibrium. A local pizza restaurant, Pizzazzy, signs a one-year lease in a new building in town and continues selling pizzas
at this price. People in your town view Pizzazzy pizzas as the same as other pizzas.
Suppose that a couple of months after the new pizza restaurant opens, the local government institutes a $8 per pizza price
ceiling. If you buy a $8 pizza from Pizzazzy a week later (and assuming Pizzazzy is behaving rationally), what do you know
about the marginal cost, average total cost, and average variable cost at the profit maximizing point of production after the price
ceiling is imposed?
Answer Bank
marginal cost
no higher than $8
no higher than $14 but
definitely higher than $8
average total cost
higher than $14
no higher than $14 but
average variable cost
maybe higher than $8
Transcribed Image Text:Suppose that the market for pizzas in your town is perfectly (or purely) competitive, with a market price of $14 per pizza in long run equilibrium. A local pizza restaurant, Pizzazzy, signs a one-year lease in a new building in town and continues selling pizzas at this price. People in your town view Pizzazzy pizzas as the same as other pizzas. Suppose that a couple of months after the new pizza restaurant opens, the local government institutes a $8 per pizza price ceiling. If you buy a $8 pizza from Pizzazzy a week later (and assuming Pizzazzy is behaving rationally), what do you know about the marginal cost, average total cost, and average variable cost at the profit maximizing point of production after the price ceiling is imposed? Answer Bank marginal cost no higher than $8 no higher than $14 but definitely higher than $8 average total cost higher than $14 no higher than $14 but average variable cost maybe higher than $8
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