The equilibrium increase in marginal costs for firms resulting from the imposition of a price floor will be larger the more inelastic the price elasticity of demand is.

Question

Quizplus · Accepted Answer

A price floor typically leads to a surplus of goods, and the impact on marginal costs is not directly related to the price elasticity of demand but rather to the firm's production and cost conditions. The elasticity of demand affects the quantity sold and the potential surplus created, not the marginal cost directly.

The Equilibrium Increase in Marginal Costs for Firms Resulting from the Imposition