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. A carpenter opens a firm producing bookcases. The inputs into the production process for bookcases are labour (L) and wood (K). In the short run, the carpenter can purchase

wood at a price of £50/unit. The labour cost (the wage) is £10/hour. a. Draw three is cost lines showing the different input combinations that yield total costs of £200, £500 and £1000.[10 marks] b. The production function for bookcases is B(L,K) = min(2L, K). The carpenter is considering the input combinations given in the table below and has asked you to tell him how many bookcases he could produce in each case. Fill out the last column of the table, shaded in green, to indicate how many bookcases are produced in each case. Which of these input combinations, if any, is efficient, and why? c. What are the Returns to Scale for the production function given in part b.? d. The market for bookcases is competitive. Bookcases sell for £100 each. What is the profit or loss per bookcase produced in the short run? In the long run, would any new firms enter this market and what will happen to the price of bookcases?

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