Below is a payroll sheet for Otis Import Company for the month of September 2014. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of $113,700. In addition, 1,45% is charged both employer and employee for an employee’s wages in excess of $113,700 per employee.

Instructions

(a) Complete the payroll sheet and make the necessary entry to record the payment of the payroll.

(b) Make the entry to record the payroll tax expenses of Otis Import Company.

(c) Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month.

Q

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.

1. What is ATC per unit for each level of output listed in the table?
2. Is this a decreasing-cost industry? (Answer yes or no).
3. Suppose that the market price for a bottle of vitamins is $2.50 and that at that price the total market quantity demanded is 75,000,000 bottles. How may firms will there be in this industry?
4. 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?

Review your answer to parts b,c, and d. Does the level of demand determine this industry’s market structure?