b. Suppose that for each 25,000-bottle-per-day increase in production above 100,
ID: 1220717 • Letter: B
Question
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 $130,000 and 150,000 bottles per day would generate total costs of $135,000). Is this a decreasing-cost industry? . c. Suppose that the price of a bottle of vitamins is $2.23 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 $2.23 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? .
Explanation / Answer
b. Yes, this is a decreasing cost industry.
(The cost decreases as more quantity is produced over and above 100,000 bottles per day).
c. There will be only one firm in the industry. It’s a case of natural monopoly.
d. Again this is a natural monopoly situation, only one firm will be there in the industry.
e. No. Advancement in technology shows economies of scale and this industry is a decreasing cost industry.
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