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.

Output	TC	MC	ATC
50,600	$165,000	$0.55
100,600	215,000	1.05
150,600	252,500	1.68
200,600	355,500	2.40

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

Instructions: Round your answers to 2 decimal places.

b. Is this a decreasing-cost industry?

      (Click to select)  Yes  No   

c. Suppose that the market price for a bottle of vitamins is $1.68 and that at that price the total market quantity demanded is 286,140,000 bottles. How many firms will there be in this industry?

    

d. Suppose that, instead, the market quantity demanded at a price of $1.68 is only 150,600. 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

OUTPUT	TC	MC	ATC
50600	165000	0.55	3.26
100600	215000	1.05	2.14
150600	252500	1.68	1.68
200600	355500	2.4	1.77

ATC=TC/Q

b)No,this is not a decreasing cost industry as ATC first decreases and then increases.

c) Total number of firms in this industry = Total demand/Output at minimum ATC

=286140000/150600

=1900

d) Total number of firms = 150000/150600

=1

e) Yes, the level of demand determines the market structure because high demand will lead to a competitive market whereas low demand will lead to a monopoly market