You are running for President of the United States

1. You are running for President of the United States. One of your promises to the American people is cheaper gas if you are elected. You win. To keep your promise to make gas cheaper you impose a price ceiling that is one full dollar less than the market’s equilibrium price.
   1. What would be the reaction of the sellers of gasoline and of the public to the price ceiling law? Thoroughly explain and define any terms.
   2. Draw a graph showing the price ceiling. Label the consumer surplus and the producer surplus
   3. Would you expect to be reelected in the long run? Explain
2. Is it possible for a firm to experience both economies of scale and diminishing marginal product at the same time? Explain and define any terms used.
3. The accompanying table outlines the explicit and implicit costs incurred by a small graphic design company in France that takes in annual revenues equal to $250,000.

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Explicit Costs
Office Rent	$2,000/month
Utilities	$200/month
Computers	$1,000/month
Labor	$5,000/month
Implicit Costs
Forgone Wages	$55,000/year
Forgone Interest on Initial Investment	$5,000/year

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a. What would this company’s accounting profits equal for a year? Explainundefined

b. What would this company’s economic profits equal for a year? Explainundefined

c. What would we expect to happen in the long run for this market? Why? Explainundefined

1. In the short run, Cat World Treats is selling cat treats in a purely competitive market. Its output is 800 treats, which it sells for $10 a treat. At the 800-treat level of output, the marginal cost is $10, the average total cost is $9.00, and the average variable cost is $8.00.
   1. Is the firm producing at its optimal level of output? Why or Why not? Explain
   2. Should Cat World Treats continue to produce in the short run or should they shut down? How do you know? Explain and be sure to include a graph in your answer.