Carmaker produces small cars in a perfectly competitive market using labour (L) and capital (K). Carmaker's...

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Carmaker 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, K¹/2}, where Q is the number of cars produced. (c) [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 > AVCmin 9 = {a 0 for p ≤ AVCmin where AVC stands for average variable cost. Find a, b, and AVCmin (d) [3 marks] A new technology of producing cars has come to the market which only uses capital g(K) = 0.5K1/2 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 2/3 of the cars with old technology, then p* = 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)? Carmaker 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, K¹/2}, where Q is the number of cars produced. (c) [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 > AVCmin 9 = {a 0 for p ≤ AVCmin where AVC stands for average variable cost. Find a, b, and AVCmin (d) [3 marks] A new technology of producing cars has come to the market which only uses capital g(K) = 0.5K1/2 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 2/3 of the cars with old technology, then p* = 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)?

Answer rating: 100% (QA)

a Output is also doubled b C 8000q 10q 2 c p 8000 20q d P 8000 20q q 1305K 12 23min ... View the full answer