As the time frame shifts from the short run to the long run, what happens to producers who are subject to a binding price floor?

Respuesta :

As time frame shifts from short run to long run, producers are increasingly willing to substitute away from producing the good, and supply curve becomes more elastic. An fixed lower limit on a commodity's market price is known as a price floor.

In order to prevent a commodity's market price from falling too low and endangering the producers' ability to make a living, governments typically create a price floor. A price floor that exceeds the equilibrium market price is a binding price floor. If the higher price offsets the lesser quantity sold, producers benefit more from the bound price floor.

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