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. MC ATC $ $ Output 50,000 100,000 150,000 200,000 TC 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)

Answer 1

Answer:

Average Total Cost = Total Cost / Total production

a) ATC per unit for each level of output:

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

ATC = $200,000/100,000 = $2

ATC = $237,500/150,000 = $1.58

ATC = $325,500/200,000 = $1.63

b) Is this a decreasing-cost industry? Yes

c) P = $1.58

Q = 240,000,000

Since costs are minimized at 150,000, we're going to have

150,000F = 240,000,000

F = 1,600 firms

d)

The market quantity demanded at a price $1.58 is only 150,000

Number of firms = Total demand / Output at the point of minimum ATC

= 150,000 / 150,000 = 1

Total number of firms in the industry with the new demand is 1 firm.

e)

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