a. What is ATC per unit for each level of output listed in the table? Output 25,

Question

a. What is ATC per unit for each level of output listed in the table? Output 25,000 50,000 75,000 100,000 TC 100,000 150,000 187,500 275, 500 MC $ .50 1.00 2.50 3.00 b. Is this a decreasing-cost industry? Yes or no? c.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? d.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? e. Review your answers to parts b, c, and d. Does the level of demand determine this industry

Explanation / Answer

(a) ATC = Total Cost / Output ATC per bottle is $4 per bottle at 25,000 bottles, $3 per bottle at 50,000 bottles, $2.50 per bottle at 75,000 units, and $2.76 per bottle at 100,000 units. (b) No. The ATC cost does NOT decline for all levels of output. (c) There will be 1000 firms in this industry. Since $2.50 is minimum ATC, firms will produce at this level of output. Any firm that deviated from this level would incur a higher ATC and would be unprofitable at the market price of $2.50. The total number of firms can be found by dividing the market quantity demanded by output produced by a firm at the ATC of $2.50, which is 75,000. Number of Firms = Market Quantity Demanded / Output Minimum ATC =75,000,000/75,000 =1000. (d) There will be one firm in this industry. The total number of firms under this assumption is: Number of Firms = Market Quantity Demanded / Output Minimum ATC = 75,000/75,000 =1 (e) Yes. high demand will result in a competitive industry while very low demand can result in a monopoly industry.

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