In 2014, the U.S. House of Representatives approved a new farm bill establishing the Margin Protection Program (MPP) for dairy producers. Assume that the program has effectively created a price floor for milk at $0.18 per pound. Use the following additional information to answer the following questions:Without the price floor, the equilibrium price of milk is $0.15 per pound, and the equilibrium quantity is 200 billion pounds of milk.The supply curve intersects the price axis at $0.05 and the demand curve intersects the price axis at $0.25.At the price floor of $0.18, the quantity supplied is 260 billion, and the quantity demanded is 140 billion.To support the price floor, the USDA buys up the 120 billion pounds of excess milk.i. With the price floor at $0.18 per pound of milk, how much consumer surplus is created? Do not round your answer. ii. With the price floor at $0.18 per pound of milk, how much producer surplus is created? Do not round your answer. iii. With the price floor at $0.18 per pound of milk, how much money does the USDA spend to buy surplus milk? Do not round your answer.

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Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter8: Understanding Markets And Industry Changes

Section: Chapter Questions

Problem 2MC

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In 2014, the U.S. House of Representatives approved a new farm bill establishing the Margin Protection Program (MPP) for dairy producers. Assume that the program has effectively created a price floor for milk at $0.18 per pound. Use the following additional information to answer the following questions:

Without the price floor, the equilibrium price of milk is $0.15 per pound, and the equilibrium quantity is 200 billion pounds of milk.
The supply curve intersects the price axis at $0.05 and the demand curve intersects the price axis at $0.25.
At the price floor of $0.18, the quantity supplied is 260 billion, and the quantity demanded is 140 billion.
To support the price floor, the USDA buys up the 120 billion pounds of excess milk.

i. With the price floor at $0.18 per pound of milk, how much consumer surplus is created? Do not round your answer.

ii. With the price floor at $0.18 per pound of milk, how much producer surplus is created? Do not round your answer.

iii. With the price floor at $0.18 per pound of milk, how much money does the USDA spend to buy surplus milk? Do not round your answer.

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