Daycare for children is in competitive industry with long run equilibrium price

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.

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