Question

Assume that the most efficient production technology available for making vitamin pills has the cost structure given in the following table. Note that output is measured as the number of bottles of vitamins produced per day and that costs include a normal profit.

a. What is ATC per unit for each level of output listed in the table?

Instructions: Round your answers to 2 decimal places.

Output	TC	MC	ATC
50,200	$155,00	$0.45
100,200	205,000	0.95
150,200	242,500	1.61
200,200	335,500	2.30

b. Is this a decreasing-cost industry?

      (Click to select)  Yes  No   

c. Suppose that the market price for a bottle of vitamins is $1.61 and that at that price the total market quantity demanded is 255,340,000 bottles. How many firms will there be in this industry?

d. Suppose that, instead, the market quantity demanded at a price of $1.61 is only 150,200. How many firms do you expect there to be in this industry?

e. Review your answers to parts b, c, and d. Does the level of demand determine this industry’s market structure?

      (Click to select)  Yes  No  

Answer 1

a.

Output	TC	MC	ATC(TC/Q)
50200	15500	0.45	0.308
100200	205000	0.95	2.045
150200	242500	1.61	1.615
200200	335500	2.30	1.676

b.No it is not a decreasing cost industry because marginal cost is increasing.

c. The total market quantity demanded is 255,340,000 bottles.There will be 255340000/150200 that is 1700 firms.

d.The market quantity demanded at a price of $1.61 is only 150,200.The total firms will be 150200/150200 that is 1 firm.

e.Yes the level of demand determines this industry market structure.