Under cost controls rationing is as inefficient

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Reference no: EM137646

Q. Consider a perfectly competitive market in which the market demand as well as curve is given by Qd = 20 - 2Pd, as well as the market supply curve is given by QS = 2PS.

a) Find the equilibrium cost as well as quantity in the absence of government intervention.

b) Assume the government imposes a cost ceiling of $3 per unit. How much is supplied?

c) Assume, as an alternative, the government imposes a production quota limiting the quantity supplied to six units. What is the market cost under this type of intervention? Is the quantity supplied under the cost ceiling greater than, less than, or the same as the quantity under the production quota?

d) Assuming that under cost controls rationing is as efficient as possible as well as under the quota, the allocation is as efficient as possible, under which program is the DWL larger: the cost ceiling or the production quota?

e) Assuming that under cost controls rationing is as inefficient as possible while under the quota, the allocation is as efficient as possible, under which program is the DWL larger: the cost ceiling or the production quota?

f) Assuming that under cost controls rationing is as inefficient as possible while under the quota, the allocation is as inefficient as possible, under which program is the DWL larger: the cost ceiling or the production quota?

Reference no: EM137646

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