Question

Production Functions - Utility Functions - Cost Function

Use the market for electric vehicles in the united states. Where the producers are the car manufacturers (Tesla) and the consumers are people interested in purchases said vehicles.

1. Please create a utility function for consumers in that marker and explain

2. Please create a production or cost function for producers in that market and explain

Answer 1

1. Utility means preference of the consumer over a set of goods and services. It is the satisfaction of the consumer from purchasing various goods. Since electrical vehicles are preferred by the consumers of Tesla, the utility function is as follows:

u=f(c1,c2)

if f(c1)>f(c2) where u denotes utility, c1 denotes the electrical car and c2 denotes other vehicles.

2. Production function is the relationship between the input and output. If one unit of input (Capital and labor) is added to the manufacturing unit, it can produce 1 unit extra output.. For Example,a car manufacturer can add 1 unit of input (Capital and labor), it can manufacture 10 cars. If they keep 2 units of input , they can manufacture 20 electrical vehicles. Thus, the car manufactures can create a production function as follows:

Q=K+L where Q is the total output or total number of electrical vehicles, K is the capital and L is the labor. Increase in 1 unit of input will increase 1 unit of output, i.e., output increases proportionally to the input