Question

What is ATC for each level of output listed in the table?

Output $TC $ATC

75,000    100,000 1.33

100,000    125,000 1.25

125,000 $140,000 $1.12

150,000 $150,000 $1.00

a. Is this a decreasing-cost industry?

b. Suppose that the price of a bottle of vitamins is $1.33 and that at that price the total quantity demanded by consumers is 75,000 bottles.

     How many firms will there likely be in this industry? 1 none, many

c. Given the information above, part  c, what kind of competition would you expect this to be:

oligopoly, monopolistic competition, monopoly

Answer 1

(a)

Since ATC is decreasing with increase in output, this is a decreasing cost industry.

(b)

Since price is fixed and does not change with output, the firm will optimize profit when Price equals Marginal cost (MC). When output is 75,000 units, ATC = MC = $1.33 = Price. Therefore, firm's profit-optimizing output is 75,000 units.

Number of firms = Total quantity demanded / Firm output = 75,000 / 75,000 = 1

(c)

When there is only 1 firm in market, this is a monopoly.