We are going to revisit the quota system in the milk industry in France. Then gi

Question

We are going to revisit the quota system in the milk industry in France. Then given the following information:

Pq= $2 is the price of one unit of quota.

Pc= $5 is the price which the consumers pays for each unit of milk when the quota is enforced.

Qq= 20 is the amount of quota set by the French government.

Answer whether each of the following are True/False and clearly explain your conclusion.

If a producer owned one unit of quota and the cost of producing one unit of milk was $2 then he should NOTsell his quota.

If you owned 10 units of the quota and you planned to sell all of them, then you should expect to receive $20 in revenue from the sale.

This quota system does not create a Deadweight Loss (DWL).

Explanation / Answer

1.False.

if he sells the quota then there would be no profits but no loss either.So,he can sell the quota.

2.True

Price of 1 unit of quota=$2

Quantity=10

Total revenue=20

3.Quota creates DEAL because the quantity sold after quota is less than equilibrium quantity and the price the consumer pays is more than equilibrium price .

Answer-False.

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