Refer to the information provided in Figure 13.10 below to answer the question(s) that follow. Figure 13.10
-Refer to Figure 13.10. If the government imposed a price ceiling of $12 on this firm, the firm would sell to
A) 1,000 subscribers and earn a profit of $4,000.
B) more than 2,500 subscribers so that price would equal average total cost.
C) 2,500 subscribers but would require a subsidy of $1,250 to stay in business.
D) 2,200 subscribers and would require a subsidy of $2,200 to stay in business.

Question

Refer to the information provided in Figure 13.10 below to answer the question(s) that follow.  Figure 13.10
-Refer to Figure 13.10. If the government imposed a price ceiling of $12 on this firm, the firm would sell to
A) 1,000 subscribers and earn a profit of $4,000. 
B) more than 2,500 subscribers so that price would equal average total cost. 
C) 2,500 subscribers but would require a subsidy of $1,250 to stay in business. 
D) 2,200 subscribers and would require a subsidy of $2,200 to stay in business.

Quizplus · Accepted Answer

At a price ceiling of $12, the firm would sell where price equals marginal cost to maximize profit or minimize losses, which occurs at a quantity of 2,500 subscribers. However, at this quantity, the price ($12) is below the average total cost, indicating the firm would incur a loss. To cover the difference between total cost and total revenue and stay in business, the firm would require a subsidy. The subsidy amount is calculated based on the difference between the average total cost at 2,500 subscribers and the price ceiling, multiplied by the quantity sold (2,500 subscribers).

Refer to the Information Provided in Figure 13