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Answer as much as you can. Please only correct answers with FULL WORKING OUT ON PAPER . NOT PLAGARISED OR I WILL REPORT Carmaker produces
Answer as much as you can. Please only correct answers with FULL WORKING OUT ON PAPER . NOT PLAGARISED OR I WILL REPORT
Carmaker produces small cars. As production emits pollution, Carmaker needs to buy pollution permits. It also needs to hire labour. Carmaker's production function is given by: (1) q = min {0.05L. E19}, where E denotes the number of pollution permits, L denotes the amount of labour and min{a,b} denotes the minimum function where min{a,b} = a if a 5 b and min {a,b} = b if a a b. (a) [1 mark] Draw the isoquant corresponding to q = 10 in a clearly labelled diagram where L is in the x-axis and E is in the y-axis. Label two pairs of E and L in the diagram which give q = 10. (b) [2 marks] What is the marginal product of L and the marginal product of E when L = 40 and E = 100? Does the production function (1) exhibit constant returns to scale for all L > 0 and E > 0. (c) [1 mark] Let m denote the price of a pollution permit and w denote the price of labour. Find the minimum cost to produce q cars when w = 200 and m = 20. [Hint: the answer would involve q.] (d) [2 marks] Using the answer to part (c), we can show that Carmaker's supply function is of the following form: _ a + bp for p > AVCmI-n '3 '{ 0 for p s Avcmm where AVC stands for average variable cost. Find a. b, and AVCmin. (e) [3 marks] Suppose there are 40 identical rms like Carmaker who act as price takers and the market demand for small cars is given by Q = 26000 p if p 5 26000, and 0 otherwise. Complete the table. Equilibrium price in the small car industry Number of cars sold by Carmaker Emission intensity for each individual rm (i.e., emission per unit of output, g)Step by Step Solution
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