3) India's Policy Changes on Carrefour, WalMart and Multinational Food Giants (40 points)

India's food is mainly distributed and sold by many small, family owned businesses characterized by low levels of technology and the lack of economies of scale, but sold in a largely competitive market structure. An estimated 55% of all food raised or grown in India never makes it to consumers and is wasted. Over the past decade, each time the government suggested letting large, more productive multinationals compete in this market for food distribution and sales, there has been public outrage blocking the policy change.

Finally, in Spring of 2016, Prime Minister Modi agreed to let Carrefour (a large French supermarket multinational) WalMart, and any others operate in India as long as 100% of the food distributed and sold is from India.

a). For a typical small family owned grocery store, make and sketch a hypothetical i) production function ii) isoquant iii). total variable cost curve and iv) overall market supply curve and then do the same for Carrefour. Ideally, place Carrefour on the same graphs as the small family owned store. (15 points)

b). Are there some microeconomic concerns of allowing Carrefour and others access to India's food market. Are there non-microeconomic concerns that should be mentioned as part of a public policy analysis? (10 points)

Pretend that the production for Carrefour to distribute and sell crates of vegetables (each unit of Q is a another create) raised in India takes the following form.

Q = L 1/3 K 2/3

c). What is the marginal product of capital when labor is held constant at 27? Is the marginal product of capital rising, falling or constant? Be sure to explain what the marginal product of capital means.

(5 points)

d). If the price of vegetables ends up 20% cheaper with multinationals allowed in India, break this price change into a substitution and income effect for a relevant Indian consumer. Be sure to graph and explain the two parts of the price change. (place all other goods on the Y axis and vegetables on the X axis). (10 points)