Goggle is a company producing candies (C) and has a production function C = min{S,2B} where...

Goggle is a company producing candies (C) and has a production function C = min{S,2B} where S is units of sugar and B is units of butter.

a. Draw Goggle’s isoquants for C = 10 and C = 20. Use isoquants to show Goggle’s returns to scale.

b. Suppose price of one unit of sugar is $3 and price of one unit of butter is $2. If Goggle were to produce 1000 candies what is the optimal amount of sugar and butter it should use to minimize costs?

c. WeTube produces artificial sweeteners (A), which can be used as a substitute of sugar in producing candies. Suppose one unit of artificial sweetener replaces two units of sugar. If Goggle uses artificial sweeteners what would be Goggle’s production function?

d. What would be the price of artificial sweetener that would make Goggle indifferent between using artificial sweetener and using sugar for producing candies?

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Expert Solution

Rahul Sunny answered 2 months ago

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