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Economics -Demand and Supply Assignment

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Added on: 2023-04-13 05:36:17
Order Code: 488687
Question Task Id: 0

Assignment Details
The electric car manufacturing industry is known to be characterized by increasing economies of scale.
Cars can be produced using three different production processes and techniques. Specifically, the total cost functions of two production processes are the following:
TC = 1000000+1500*Q
where TC and Q denotes the total cost and the number of cars, respectively while a and b denote production processes associated with one and two production blocks, respectively.
Note that the the fixed cost and the marginal cost of production process a are 1000000 and 1500, respectively while the fixed cost and the marginal cost of production process b are
2000000 and 1000, respectively.
The electric car demand function is as follows:
1.1. What is the production process a profit-maximizing firm is likely to choose? Note P=2500-0.5*Q
that a profit maximizing firm will choose to produce where the marginal revenue is equal to the marginal cost. Please be elaborate to explain why the firm chooses a production process over the others.

1.2. Due to the COVID-19 pandemic and high energy prices, the demand for petrol cars decreases while the demand for electric cars increases. As a result, the electric car demand curve shifts to the right. We have the following new electric car demand funtion:
P= 5000-0.5Q.
What is the production process that the firm chooses following a increase in demand for electric cars? Please elaborate

1.3. Graphically illustrate why an increase in the fixed cost component of production processe b, which is associated with a more fragmented production technique, is likely to have a negative impact on the global value/supply chain.

  • Uploaded By : Katthy Wills
  • Posted on : April 13th, 2023
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