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Unformatted text preview: 2 (b) If the price floor is imposed at a price of $60 per bushel , explain, with as much detail as possible, the effects this control will have on Farmer Redenbachers enterprise and anyone who is affected by this control. P C = $60, a price floor Since P D = 150 - 1/5 Q D $60 = 150 - 1/5 Q D-90 = -1/5 Q D 450 = Q D amount purchased at P C . Results of price floor : 1. P increase by $10, from $50 to $60 2. Q D decreases by 50 units, from 500 to 450 3. At P C a surplus of 50 units exists Before PC TE = TR = P E x Q E = $50 x 500 = $25,000 After PC TE = TR = P C x Q D = $60 x 450 = $27,000 If the government purchases the surplus at the price floor of $60, the farmers TR would be = P C x 500 = $60 x 500 = $30,000....
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- Fall '09