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. What is ATC per unit for each level of output listed in the table? Is this a decreasing-cost industry? (Answer yes or no). Suppose that the market price for a bottle of vitamins is $2.50 and that at that price the total market quantity demanded is 75,000,000 bottles. How many firms will there be in this industry? Suppose that, instead, the market quantity demanded at a price of $2.50 is only 75,000. How many firms do you expect there to be in this industry? Review your answers to parts b, c, and d. Does the level of demand determine this industry's market structure?

Explanation / Answer

a) ATC per unit for each level of output:

25,000 ATC = $100,000/25,000 = $4

50,000 ATC = $150,000/50,000 = $3

75,000 ATC = $187,500/75,000 = $2.50

100,000 ATC = $275,500/100,000 = $2.75

b) Is this a decreasing-cost industry? Yes (up to a point, but that's part of the def.)

c) P = $2.50

Q = 75,000,000

Since costs are minimized at 75,000, we're going to have

75,000F = 75,000,000

F = 1,000 firms

d) $2.50, 75,000 => we'll have one firm.

e) Yes, the level of demand determines the firm's market structure.

I hope that you found this answer useful towards your studies. It took a considerable amount of thought, time, and effort to compose, and and I'd sincerely appreciate a lifesaver rating! It would really make my day! :)

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