Daycare for children is in competitive industry with long run equilibrium price
ID: 1227920 • Letter: D
Question
Daycare for children is in competitive industry with long run equilibrium price at $60/day. The government intervenes and limits what providers can charge and imposes a price ceiling of $45/day. As a result:
A. Demand for daycare increases and many new daycare centers are established
B. Supply of daycare services fall and causes prices to fall below $45/day
C. Parents have a more difficult time finding daycare providers for kids
D. Demand for daycare increases and causes price to rise above $60/day
Explanation / Answer
Answer) C. Parents have a more difficult time finding daycare providers for kids.
since perfect competition already works at P=MC , putting price ceiling at even lower price would make firms to exit the market. supply would become short or very harder for parents to find daycare facilities.