Efficient production technology available for making vitamin
Assume that the most efficient production technology available for making
vitamin pulls 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 25,000 $100,000 $0.50 50,000
150,000 1.00 75,000 187,000 2.50 100,000 275,500 3.00
a.) What is ATC per unit for each level of output listed in the table?
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 equilibrium 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’s market structure.
