Price Floor Effects with Decreasing Returns
What is a likely unintended consequence when a government imposes a binding price floor on a good produced by an industry with decreasing returns to scale?
A
Shortage of goods since producers cannot cover production costs at higher output levels.
B
Immediate industry-wide adoption of more efficient technology to reduce production costs.
C
Surplus of goods due to decreased demand and increased production costs.
D
Perfect competition converts into a monopolistic competition as firms gain pricing power.
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