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Suppose the government enacts a price ceiling on ice cream. Identify the various potential decisions made by ice cream producers to compensate for the price ceiling and maintain profits.
a. Reducing the size of each carton of ice cream
b. Lowering the quality of ice cream by using cheaper products
c. Discontinuing the production of fancier varieties
e. Hiring additional workers at a lower wage in order to meet demand Incorrect Answer(s)

Answer :

cancinodavidq

Answer:

Explanation:

If the government enacts a price ceiling on Ice-Cream,it would mean producer won't be able to sell the ice cream at above the price defined as price ceiling.This point is generally below the equilibrium point in demand-supply curve. This would lead to decrease in supply than the demand of the ice cream ,which would mean the shortage in market.

Now to compensate for the price ceiling and maintain the profit ,they will lower the quality of ice cream by using cheaper products so that the cost of ice cream can come down, also since the price at which it could be sold is limited,they will reduce the size of each carton of ice cream in order to maintain profit . They will also discontinue the production of fancier varieties ,which will reduce the overall input cost of producing ice cream. Although the demand is more,the supply is still less so there is no point of hiring additional worker even at lower wage.  

So,

Correct Answer - lowering the quality of ice cream by using cheaper product , reducing the size of each carton of ice cream and discontinuing the production of fancier varieties.

Incorrect answer : hiring additional workers at lower wage in order to meet demand.

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