A new production technology for making vitamins is invented by a college profess

Question

A new production technology for making vitamins is invented by a college professor who decides not to patent it. Thus, it is available for anybody to copy and put into use. The TC per bottle for production up to 100,000 bottles per day is given in the following table.

OUTPUT: 25,000 50,000 75,000 100,000

TC: 80,000 100,000 105,000 110,000

ATC: ? ? ? ?

b. Suppose that for each 25,000-bottle-per-day increase in production above 100,000 bottles per day, TC increases by $5,000 (so that, for instance, 125,000 bottles per day would generate total costs of $115,000 and 150,000 bottles per day would generate total costs of $120,000).

Is this a decreasing-cost industry? (Click to select)YesNo.

c. Suppose that the price of a bottle of vitamins is $1.93 and that at that price the total quantity demanded by consumers is 75,000,000 bottles.

How many firms will there be in this industry?  firm(s).

d. Suppose that, instead, the market quantity demanded at a price of $1.93 is only 75,000.

How many firms do you expect there to be in this industry?   firm(s).

e. Review your answers to parts b, c, and d. Does the level of demand determine this industry’s market structure? (Click to select)NoYes.

Explanation / Answer

(a)

(b) Yes, this is  this a decreasing-cost industry.

(c) only one firm, because this is a natural monopoly situation.

(d) only one firm, because this is a natural monopoly situation.

(e) No,  the level of demand does not determine this industry’s market structure

Output TC ATC($) 25000 80000 3.20 50000 100000 2.00 75000 105000 1.40 100000 110000 1.10

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