Assume that the most efficient production technology available for making vitami

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 50,000 100,000 150,000 200,000 150,000 $ 200,000 237,500 325,500 0.40 0.90 1.58 2.25 b. Is this a decreasing-cost industry? (Click to select) c. Suppose that the market price for a bottle of vitamins is $1.58 and that at that price the total market quantity demanded is 240,000,000 bottles. How many firms will there be in this industry? firm(s). d. Suppose that, instead, the market quantity demanded at a price of $1.58 is only 150,000. How many firms do you expect there to be in this industry? firm(s). e. Review your answers to parts b, c, and d. Does the level of demand determine this industry's market structure? (Click to select)

Explanation / Answer

(a) ATC = TC / Output

(b) NO

A decreasing cost industry experiences a continuously decreasing ATC as output rises. Here, initially ATC falls but then starts rising.

(c) When Price = MC = $1.58, firm output = 150,000

Number of firms = Market output / Firm output = 240,000,000 / 150,000 = 1,600

(d) When Price = MC = $1.58, firm output = 150,000

Number of firms = Market output / Firm output = 150,000 / 150,000 = 1

NOTE: As per Chegg answering policy, first 4 parts are answered.

OUTPUT TC MC ATC 50,000 1,50,000 0.4 3.00 1,00,000 2,00,000 0.9 2.00 1,50,000 2,37,500 1.58 1.58 2,00,000 3,25,500 2.25 1.63

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