Suppose the government regulates the price of a good to be no lower than some minimum level. Can such a minimum price make producers as a whole worse off? Explain.
As a higher price increases revenue and decreases demand, a few consumer surplus is transferred to manufacturers but some producer revenue is lost as consumers purchase less. The problem along with a price floor or minimum price is that it sends the wrong signal to producers. Thinking that much more should be produced as the price goes up, producers incur extra cost to generate more than what consumers are willing to purchase at these higher prices. These additional costs can overwhelm gains captured in increased revenues. So, unless all producers decrease production, a minimum price can create producers as a whole worse off.