Two charts and questions attached
The spreadsheet information below describes the cost structure faced by two producers of high quality hospital gowns in the United States. The two firms, Healthy Designs and Glamour Gowns, compete against each other and a large number of firms in this highly competitive industry. The sheet shows the marginal cost, total variable cost, average variable cost, average fixed cost, and average total cost for each firm for the month. All relevant economic costs are captured by this cost information. The explanations for your answers are worth more than the numerical answer. a. Currently, the hospital gown market in United States has settled at a market price for that month of $91 and the firms have not yet paid their fixed costs yet. What quantity should Healthy and Glamour each choose if they wish to maximize their total profits? Explain your logic for making these choices. (40 points) b. Both Healthy and Glamour already have paid their fixed costs for the month. The luxury hospital gown market takes a temporary downturn that causes the market price of luxury hospital gowns to fall to $51. How much output will each profit-maximizing firm produce in this situation? Explain your answer. (40 points) c. In the long run it turns out that there are enough firms with costs like Healthy to more than supply the market for hospital gowns. Similarly, there are enough firms with costs like Glamour to more than supply the market. All of the firms like Healthy and the firms like Glamour are competing in one market. In long run equilibrium, what market price would we expect to see and how many luxury hospital gowns per month would we expect each typeCost Structure for Healthy: Marginal Total Avg. Avg. Avg. Quantity Cost Variable Variable Fixed Total Cost Cost Cost Cost DOYOUAWNP 80 80 80.00 200.00 280.00 40 120 60.00 100.00 160.00 30 150 50.00 66.67 116.67 20 170 42.50 50.00 92.50 15 185 37.00 40.00 77.00 10 195 32.50 33.33 65.83 5 200 28.57 28.57 57.14 10 210 26.25 25.00 51.25 15 225 25.00 22.22 47.22 10 25 250 25.00 20.00 45.00 11 30 280 25.45 18.18 43.64 12 50 330 27.50 16.67 44.17 13 60 390 30.00 15.38 45.38 14 90 480 34.29 14.29 48.57 15 100 580 38.67 13.33 52.00Cost Structure for Glamour: Quantity Marginal Total Avg. Avg. Avg. Cost Variable Variable Fixed Total Cost Cost Cost Cost 110 110 110.00 200.00 310.00 90 200 100.00 100.00 200.00 80 280 93.33 66.67 160.00 70 350 87.50 50.00 137.50 60 410 82.00 40.00 122.00 50 460 76.67 33.33 110.00 40 500 71.43 28.57 100.00 30 530 66.25 25.00 91.25 20 550 61.11 22.22 83.33 10 30 580 58.00 20.00 78.00 11 40 620 56.36 18.18 74.55 12 45 665 55.42 16.67 72.08 13 55 720 55.38 15.38 70.77 14 90 810 57.86 14.29 72.14 15 100 910 60.67 13.33 74.00
