Question

Assume that the most efficient production technology available for making vitamin pills as the cost structure giving him the following table. Note that output is measured as the number of bottles of vitamins produces per day and that costs include a normal profit

Assume that the most efficient production technology available for making vitamin pills has the cost structure given in the followin 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. C ATC M $ $ Output 51,000 101,000 151,000 201,000 TC 175,000 225,000 262,500 375,500 0.65 1.15 1.74 2.50 b. Is this a decreasing-cost industry? Click to select c. Suppose that the market price for a bottle of vitamins is $1.74 and that at that price the total market quantity demanded is 317,100,000 bottles. How many firms will there be in this industry? firm(s)

Answer 1

Solution:-

(A). Calculate Total revenue and Marginal Revenue at each Quantity:-

Output	TC	MC	ATC
51,000	175,000	0.65	(175,000 / 51,000) = 3.43
101,000	225,000	1.15	(225,000 / 101,000) = 2.23
151,000	262,500	1.74	(262,500 / 151,000) = 1.74
201,000	375,500	2.50	(375,500 / 201,000) = 1.87

(B). The ATC does not decline for all levels

Of output, therefore, it is not a decreasing cost industry.

(C). Number of Firms = Market Demand / Output with Minimum ATC

                                          = 317,100,000 / 151,000

                                          = 2,100

(D). Number of Firms = Market Demand / Output with Minimum ATC

                                          = 151,000 / 151,000

                                          = 1

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