With a price floor
A) Producer surplus will increase if profits increase
B) Producer surplus will increase is profits fall
C) Producer surplus will decrease if profits increase
D) Producer surplus always decreases

Question

Quizplus · Accepted Answer

A price floor sets a minimum price that must be paid for a good or service. If this price is above the equilibrium price, then it will decrease the quantity demanded and increase the quantity supplied. As a result, producer surplus will increase if profits increase because they are able to sell their products at a higher price and earn more revenue. When profits fall, producer surplus may decrease but it is not a guarantee, as it depends on the specific situation. Therefore, the correct answer is A.

With a Price Floor