3. There are two profit maximising firms, Alpha Inc. and Beta Ltd. Both use labour, L and capital, K to produce their ou

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3 There Are Two Profit Maximising Firms Alpha Inc And Beta Ltd Both Use Labour L And Capital K To Produce Their Ou 1 (247.91 KiB) Viewed 23 times

3. There are two profit maximising firms, Alpha Inc. and Beta Ltd. Both use labour, L and capital, K to produce their output, Q and they both employ workers at the minimum wage. Following a government review, the national minimum wage rises from W, to W2 (a) Use an isoquant/isocost diagram to show how this will affect Alpha's optimal choice of inputs, assuming it wants to continue to produce the same output. (5 marks) (b) Following the increase in the wage rate, Alpha Inc. reduces the number of workers employed by significantly more than Beta Ltd. Construct the demand curve for labour for Alpha Inc. and explain how and why its shape will change if you graphed the same curve for Beta Ltd. (6 marks) There is a third firm in this market called Gamma plc. which also uses labour and capital to produce output, where w is the price of labour, r is the price of capital and Q is the output. Suppose that Gamma plc. is a price-taking firm and faces a cost function: 1 1 1 c(w,r, Q) = ż wzrāQ? (c) By deriving an expression for the marginal cost function, explain whether the production process that gives rise to the total cost function has increasing, decreasing or constant returns to scale. (4 marks) 1 (d) Continue to use Gamma plc's cost function from part (c) of c(w,r,Q) = { wărăQ2 r = and continue to assume that the firm is a price taker in the competitive market. Find an expression for Gamma plc.'s supply function Q(p,w,r) and its profit function (p,w,r). (10 marks)