Question

a.

What is ATC for each level of output listed in the table?

Output $TC $ATC

75,000 $100,000 $ [ Select ] ["1.20", "1.33", "0.67", "1"]   

100,000 $125,000 $ [ Select ] ["1", "1.10", "0.87", "1.25"]      

125,000 $140,000 $1.12

150,000 $150,000 $1.00

b. Is this a decreasing-cost industry? [ Select ] ["no", "need more information", "yes"]   

c. Suppose that the price of a bottle of vitamins is $1.33 and that at that price the total quantity demanded by consumers is 75,000 bottles.

     How many firms will there likely be in this industry? [ Select ] ["none", "1", "many"] firm(s).

d. Given the information above, part  c, what kind of competition would you expect this to be  [ Select ] ["monopolistic competition", "monopoly", "oligopoly"]      

Answer 1

(a)

Average total cost is calculated as follows -

ATC = Total cost/Output

When output produced is 75,000 bottles and the total cost is $100,000.

Calculate -

ATC = TC/Output

ATC = $100,000/75,000 = $1.33

The ATC is $1.33

Similarly, ATC can be calculated at other levels of output.

Following is the complete table -

Output	Total Cost	Average Total Cost
75,000	$100,000	$1.33
100,000	$125,000	$1.25
125,000	$140,000	$1.12
150,000	$150,000	$1.00

(b)

The above table shows that as output produced is increasing, the average total cost is decreasing.

This happens in case of decreasing cost scenario.

So,

This is a decreasing cost industry.

(c)

The price of a bottle of vitamin is $1.33

At this price, 75,000 bottles are demanded.

The cost table shows that a firm can produce and supply 75,000 bottles at average cost of $1.33

Thus,

There will be only 1 firm likely to be in this industry.

(d)

When an industry has only one firm, it is considered to be a monopoly.

So,

This is to be a monopoly.