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. Output TC MC ATC 25,300 $103,000 $0.53 50,300 153,000 1.03 75,300 190,500 2.53 100,300 278,500 3.03 a. What is ATC per unit for each level of output listed in the table? Instructions: Round your answers to 2 decimal places. b. Is this a decreasing-cost industry? c. Suppose that the market price for a bottle of vitamins is $2.53 and that at that price the total market quantity demanded is 97,890,000 bottles. How many firms will there be in this industry? d. Suppose that, instead, the market quantity demanded at a price of $2.53 is only 75,300. 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’s market structure?

Answer 1

a)
Output	TC	MC	ATC
25300	103000	0.53	4.07
50300	153000	1.03	3.04
75300	190500	2.53	2.53
100300	278500	3.03	2.78
b) No. This is not a decreasing cost industry because ATC reduces until Q = 75300 but then start increasing.
c) P = $2.53. Qd = 97890000
Firms will produce Q = 75300 at P = $2.53. P = MC rule.
let there be n firms: n*75300 = 97890000
n = 97890000/75300
n = 1300
d) If Qd = 75300 then
n = 1.
e) the market structure is determined by the various factors such as number of participants, and their ability to affect prices, other factors may include homogenity of products supplie by various firms. The structure of cost curves .