Answered: Emma sells hot chocolate outside of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Emma sells hot chocolate outside of Yankees baseball games. They have two inputs in the production of hot chocolate: (hot chocolate mix (x₁, measured in kg) and labour (x₂, measured in hours. The production function for hot chocolate (in liters) is:

f (x₁ , x₂) = (x₁)^1/3(x₂)^1/3

A) Does this firm have constant, increasing or decreasing returns to scale?

The cost of hot chocolate mix is w₁, and the cost of labour is w₂.

If Emma produces "y" liters of hot chocolate the cheapest way possible, then

B) How many kilograms of hot chocolate mix would they use?

C) How many hours of labour?

D) What is the cost function of producing this much hot chocolate?

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