A new production technology for making vitamins is invented by a college professor who decides not to patent it. Thus, it is available for anybody to copy and put into use. The TC per bottle for production up to 100,000 bottles per day is given in the following table.
Instructions: In part a, enter your responses in the gray-shaded cells and round your answers to 2 decimal places. In parts c and d, enter your answers as whole numbers.
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a. What is ATC for each level of output listed in the table?
b. Suppose that for each 25,000-bottle-per-day increase in
production above 100,000 bottles per day, TC increases by $5,000
(so that, for instance, 125,000 bottles per day would generate
total costs of $120,000 and 150,000 bottles per day would generate
total costs of $125,000).
Is this a decreasing-cost industry? (Click to select)NoYes.
c. Suppose that the price of a bottle of vitamins is $2.03 and that at that price the total quantity demanded by consumers is 75,000,000 bottles.
How many firms will there be in this industry? firm(s).
d. Review your answers to parts b and c. Does the
level of demand determine this industry’s market structure? (Click
to select)YesNo.
(a) ATC is calculated as TC/Q.
| Output (Q) | TC | ATC = TC/Q |
| 25,000 | 85,000 | 3.4 |
| 50,000 | 105000 | 2.1 |
| 75000 | 110000 | 1.46 |
| 100000 | 115000 | 1.15 |
(b) YES, this is a decreasing cost industry because we can see from the table above, as there is increase in output , average total cost goes on decreasing.
(c) Only one firm because decreasing average cost is situation under natural monopoly. Therefore, there will be only one firm.
(d) No, level of demand does not determine this industry's market structure.
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