The meat-processing industry in Hungary is perfectly competitive, and there are two types of firms operating, domestic and foreign. Two representative (typical) firms are the domestic-owned Martons Meat-grinders and the foreign-owned Kostas Kutters (henceforth MM and KK), which use slightly different technology, their production functions are:For MM: qM = L0.6 K0.4For KK: qK = L0.5 K0.5Currently, the wage rate is $5 and the rental rate of capital is $10.(a) Write down the cost-minimisation condition for the two firms.(b) What are the equations for the (long-run) expansion paths? Comment. (c) What is the average and the marginal cost for the two firms?(d) Are foreign-owned firms (like KK) able to survive in a competitive market?(e) Assume that KK is more efficient than MM, such that: qK =A L0.5 K0.5. A is a scaling factor, representing managerial quality (say Kostas organises production more efficiently and is better at disciplining workers). What is the value of A if both types of firms are able to stay in the market?(f) What will be the output price in this market?(g) Assume that the demand function for processed meat is Q=225 9p. What is the equilibrium quantity?(h) Calculate the elasticity of demand at the equilibrium point.(i) If there are currently 10 domestic firms (like MM) and 5 foreign firms (like KK) in the market, how much will each of them produce?(j) Calculate the capital and labour input for the two types of firms if qM = L0.6 K0.4 and qK =A L0.5 K0.5 (assume that A is equal to what you found in question e).
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