A firm produces a soft drink using two ingredients, sugar (S) and bubbly water (B) in...

A firm produces a soft drink using two ingredients, sugar (S) and bubbly water (B) in fixed proportions: 6 tablespoons of sugar per 12 oz of bubbly water.

a)What is the production function?

b)Does this production function exhibit constant, increasing, or decreasing returns to scale?

c)Write down the firm’s cost minimization problem and solve for the conditional factor demands.

Solutions

Expert Solution

A conditional factor demand is the cost-minimizing level of an input (factor of production) such as labor or capital, required to produce a given level of output, for given unit input costs (wage rate and cost of capital) of the input factors.

Rahul Sunny answered 1 year ago

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