Assume that the world price of Commodity X is 9 per unit while its domestic price is 8, and the marginal cost of production is 6 per unit. If the government imposes a price ceiling of 7 on domestic output:
a. the import of Commodity X from the world market would stop.
b. the world price of Commodity X would decline.
c. a surplus of Commodity X would accumulate in the domestic market.
d. a shortage of Commodity X would be observed in the domestic market.
Question 2
When a perfectly competitive firm's demand curve lies above its average total cost curve, the firm incurs an economic loss at that level of output.
a. True
b. False
Indicate whether the statement is true or false
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