How the U.S. Got Into this Baby Formula Mess

EconEye Admin

4 years ago

Four U.S. firms, operating a small number of factories to keep production costs low, control approximately 90% of the U.S. infant formula industry. The FDA temporarily closed one firm for safety concerns. Regulatory barriers complicate foreign firms entering the U.S. market.—npr.org

Answer the following questions to check your understanding of the story.

In what type of market do U.S. infant formula producers compete? How does this market type arise?

U.S. infant formula producers compete in _____________.

a) an oligopoly that arises because of natural and legal barriers to entry

b) a monopoly that arises because all firms are producing the same product

c) a perfectly competitive market that arises because of natural and legal barriers to entry

d) monopolistically competitive market that arises from firms producing differentiated infant formula

What are the characteristics of the four market types? What are the characteristics of the U.S. infant formula market?

The U.S. market for infant formula is an oligopoly. The market is served by a small number of firms. Regulatory barriers against foreign formula makers give the market a legal barrier to entry. And the use of only a small number of factories to keep production costs low indicate a natural barrier to entry.

How did the United States get into this “baby formula mess”?

The United States got into this “baby formula mess” because ______________.

a) one firm closed temporarily, and lost output was not quickly replaced with foreign-produced formula

b) supply chain shortages decreased supply and families were unable to pay the higher equilibrium price

c) the closing of one firm changed consumer behavior and demand increased

d) the remaining three U.S. firms no longer produced the quantity at which marginal cost equaled marginal revenue

The “baby formula mess” was a shortage of baby formula. Did demand or supply change to create this shortage? What event made this change occur?

The shortage of baby formula arose when one firm was closed due to safety concerns. The lost output was not quickly replaced with foreign-produced formula due to international trade barriers.

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