Question

Consider the FruitCity. There are m inhabitants of FruitCity and they wish to consume only two kinds of goods, apples (c) and bananas (y). The preference ordering for each consumer can be represented by the utility function UE,y) = r/2y . Each consumer has income M. The price of apples is pr, that of bananas, Py. The marginal utility of apples is MU, = (1/2),-1/2,1/2 and for banaans MU, = (1/2) 21/2-1/2, The production function for apples is r = AK/LV/2, where r is the quantity of apples produced, K is the amount of land used, L is the amount of labour

Answer 1

Answer: The Given information - Utility function UCHY) = a'le yle to apples Mlina ey" : Y bananas Mely fall - Production function for apples na Aki" MPK = 1 Alhalle MP = 1 ALT K2 1 At the consumen equilibrium 12 Py Y = Pa → From the consumen equilibrium ma. Pyy + Px. 1 st y = hly a on he market demand for apples is 70m2 MM LP The shant-nun cast function far apples is R = Akih, Akht'l . L = 1² 1 A2 Total cost 70 39 kot wl antota Arko

A20 » Shoot - sun MC - Porte de 2 2 In perfect competion firm supply according to me ie; P = Mc = 22W =) a = 4²ko fun ALKO zw 3) market supply function for apples TSantana kopn. 200 2), At equilibrium 2 TS. T nArko Pox mm zw. 29 2 mMW P = narko Baš ona Timp am mw) - An MM KO 1. 2. W 8 4. Ako Assuming A=1, nazo, maloo, Maroo, w=wker 31=1 1ooxloox4 19tZ = 20 20 20xiVOX XS0002SO 12.5 t t Ako Pa ale 5*20 hon > 2:5

a t 125 XLV -(150 +4 (129) . 9) The market condition is given below MC A7c 10.N L 125 As each firm has identical cost curves and there is free entry and exit into the market - The positive economic profit attracts new firms to the market -) The price falls until it equals to minimum ATC --> The equilibrium occurs where price equals to ATC & Mc . This happens at the minimum point of. ATC Clone . - In this case each firm eann above normal Profit → Each firm will produce less output and the market quantity would rise due to increase in the number of firms