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Detailed explanation of parts A,B and C, thanks Darmaker produces small cars in a perfectly competitive market using labour (L) and capital (K). Carmaker's production
Detailed explanation of parts A,B and C, thanks
Darmaker produces small cars in a perfectly competitive market using labour (L) and capital (K). Carmaker's production function is given by f(L,K) = min {0.05L, Km} where q is the number of cars produced. (a) Starting from L > 0, K 3' 0. suppose you double the amount of L and K. Is it possible for output (q) to more than double (i.e., increase from q to Aq where A > 2)? (b) Find the minimum cost to produce q cars when the price of labour (w) is 400 and price of capital (r) is 10? [Hint: the answer would involve q.] (o) Using the answer to part (b), we can show that Carmaker's supply function is of the following form: _ {a + bp for p > Ill/(2mm q ' 0 for p g AVCmm where AVC stands for average variable cost. Find a, b, and AVCmin (d) A new technology of producing cars has come to the market which only uses capital g(K) = 0.5K\"2 As in part (c), continue to assume w = 400 and r = 10. Carmaker maximizes profits. It uses both technologies and sells q'cars in a perfectly competitive market where the price of small cars is p*. If 1/3 of cars are produced using new technology and 213 of the cars with old technology, then pvt: ;q*= How many cars do Carmaker produce in total? What must be the price of cars (assuming that the market for cars is perfectly competitive)Step by Step Solution
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