Refer to Figure 16.3. If the firm maximizes profits and the government ________, it will produce 20 units of output.

A) establishes a price floor of $6
B) establishes a price ceiling of $8
C) requires it to take damages into account
D) does not require it to take damages into account

Price Floor

A government-imposed limit on how low a price can be charged, usually above the equilibrium price, which can prevent the market from clearing.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or resource, usually intended to protect consumers from prices deemed excessively high.