Instruction : Please answer ALL questions.
All questions carry equal marks. Please do not write over 2000 words for the entire assignment.
1. a. Using the graph shown, analyze the effect a $300 price ceiling would have on the market for ten-speed bicycles. Would this be a binding price ceiling?
b. Using the graph shown, analyze the effect a $700 price floor would have on this market for ten-speed bicycles. Would this be a binding price floor?
c. Why would policymakers choose to impose a price ceiling or price floor?
2. Bob Edwards owns a business. Bob hires an economist who assesses the shape of the business's average total cost (ATC) curve as a function of the number of units produced.
The results indicate a U-shaped average total cost curve. Bob's economist explains what makes the ATC U-shaped.
Explain the reasons as to why ATC is U-shaped. You are required to use practical reasons related to any business that you are familiar with in explanations.