In: Economics
Problem 1: You are the manager of Archer-Daniels Midland Company (ADM). ADM uses corn to produce high fructose corn syrup (HFCS) and corn oil (e.g., Mazola). Assume that the production of corn oil is positively related to the production of HFCS. Write out a cost function and show that there are cost complementarity and economies of scope in the production of HFCS and corn oil. Problem 2: Given the solution to problem 1, assume that you would like to increase production of HFCS and corn oil. So you have decided to add night-shift to the production of these two products. The justification you have given your boss is that adding the night-shift does not increase fixed costs in the short-run. Based on economic theory, explain your justification