The graph above represents a competitive market for a product where the government now has introduced a price floor of 0C. Which area in the graph represents the producers' sales revenue after the imposition of the price floor?

Question

Quizplus · Accepted Answer

The area 0CEJ represents the producers' sales revenue after the imposition of the price floor. This is because the price floor of 0C creates a surplus of supply, meaning that producers are producing more than consumers are willing to buy at that price. As a result, the market price is pushed up to the intersection of the demand curve and the price floor at point J. At this price, producers are selling Q2 units (as opposed to Q1 units before the price floor), and they are receiving a price of 0E per unit. The producers' sales revenue is equal to the area of the rectangle 0CEJL, which is the price per unit (0E) multiplied by the quantity sold (Q2).

The Graph Above Represents a Competitive Market for a Product