Hill Country Farms Inc. is a small grower of peaches. Hill Country estimates that peach output would increase by 600 bushels per season with an additional 6,000 gallons of water provided strategically throughout the season by an existing irrigation system. Alternatively, peach output could be increased by 500 bushels per season with an additional 2 tons of fertilizer applied at the beginning of the season. Given the cost of water is $.01 per gallon and that fertilizer is $25 per ton, Hill Country Farms is using an optimal combination of fertilizer and water.

Question

Quizplus · Accepted Answer

To determine the optimal combination of inputs, we need to calculate the marginal product per dollar of each input. For water, the marginal product per dollar is 60 (600 bushels / 6,000 gallons * $0.01 per gallon). For fertilizer, the marginal product per dollar is 20 (500 bushels / 2 tons * $25 per ton). The marginal product per dollar of water is higher than that of fertilizer, indicating that Hill Country Farms should use more water and less fertilizer to maximize profits. Therefore, the current combination of inputs is optimal.