Use the figure. At a price of $12, the firm earns a profit of approximately: $0

Question

Use the figure. At a price of $12, the firm earns a profit of approximately: $0 $600, 000 $1,440, 000 $1, 000, 000 Mobile homes are housing units installed on a permanent foundation owned by a landlord. Although a resident owns the home, she rents the foundation from the landlord. In theory, owners of mobile homes can transfer their home to a different foundation if the rent becomes too steep, but uninstalling, transporting, and reinstalling the mobile home is usually prohibitively expensive. This "lock-in" effect encourages state legislatures to create rent controls for mobile home foundations. Which statement is a plausible, unintended consequence of these laws? The price of mobile homes is artificially low. There are few new mobile home foundations constructed. The price of transporting mobile homes is artificially high. There are too many mobile homes supplied to the market.

Explanation / Answer

10. $600,000

Profit = Total Revenue - Total Cost = P*Q - AC*Q = (P-AC)*Q = ($12-$7)*120,000 = $600,000

11. There are few new mobile home foundations constructed.

Since due rent control by state legislature, the rent will be lower then the equilibrium rent, so there will be less incentive for construction of new foundations.

If you don't understand anything then comment, I'ill revert back on the same. :)

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