Economics Questions and Answers

In the long run, all the factors of production are variable and the cost is accumulated as a result of changes in the various levels of production. Average cost decreases in the longrun due to increasing economies of scale. This refers to the situation where, as the quantity of output goes up, the cost per unit reduces.

Market equilibrium is a market state where the supply in the market is equal to the demand in the market. The equilibrium price is the price of a good or service when the supply of it is equal to the demand for it in the market.

A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service. 

A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage--the minimum price that can be payed for labor.

For a price floor to be effective, it must be set above the equilibrium price.

The price a consumer is willing to pay for a good depends on his marginal utility, the marginal utility declines with each additional unit of consumption, according to the law of diminishing marginal utility. Therefore, the price is equal to the marginal utility

Infinitely elastic supply, by definition, means that any decrease in the product price would immediately cause the supply to shift to zero.