PLEASE ANSWER ALL OF PART 3 and underline each individual answer and also answer question 4 and 5 PLEASE AND THANK YOU!
Please Answer All Of Part 3 And Underline Each Individual Answer And Also Answer Question 4 And 5 Please And Thank You 1 (50.76 KiB) Viewed 48 times
Please Answer All Of Part 3 And Underline Each Individual Answer And Also Answer Question 4 And 5 Please And Thank You 2 (25.61 KiB) Viewed 48 times
III. Assume that in a market all firms have the same technology for producing a single good represented by the production function: ✓min{K, L} if T21 F(K,L,T) = {} 0 if T <1 Where K, L and T are inputs of production, which are sold in a competitive market at prices r, w and f respectively. Answer the following: 1. (hard) Show that the minimum cost function is c(q) = q³(r+w) + f where q is the quantity produced. 2. Identify variable cost VC(q) and fixed cost FC. For the following questions assume r == 1 and f =108 3. Get the marginal cost MC(q), the average total cost ATC(q) and the average variable cost AVC(q) functions. Draw them in a graph. Comment on the economies of scale of this firms. 4. What is the minimum scale of production in a competitive market in the long and short run? Identify them in the graph you draw above. 5. Assume the inverse demand function is D(Q)= 90-Q where Q is the aggregate production in this market (sum of production over all participating firms). If there is free entry and the market is competitive. Compute: a) Equilibrium price p in the long run b) Total production Q' in the long run c) Firm level scale q in the long run d) Total number of firms N° in the long run 6. Assume there is a negative shock in demand, and thus the inverse demand function is now Di(Q) 84-Q. Describe what will happen in the short and long run.
For questions (4) and (5), assume that A = 1, t=1, a=0.5, w = 1 and r = 1. 4. Determine the minimum cost function in a short run setting where capital is fixed at a K, that is determine how much labor to choose for producing q units when K = K, and calculate the total cost of the firm for each posible production level q. 5. Is the short run cost function higher or lower than the long run cost function for q= 100? Is there any level of K such that they are equal? Draw a picture including isoquant and isocost function in short and long run (in the same graph with different colors), and the optimal solution for each problem. Next (and last) exercise in next page. 1
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