Joe's Bar and Grill uses two inputs, beer and pretzels.When the price of beer was $10 a case and the price of pretzels was $20 a case, Joe used 1 case of beer and 2 cases of pretzels a day.When the price of beer was $20 a case and the price of pretzels was $10 a case, Joe used 2 cases of beer and 1 case of pretzels a day.Joe produced the same output in each of these circumstances.
A)Joe has a constant returns to scale production function.
B)Joe has a cost function that exhibits increasing returns.
C)Joe is not minimizing costs.
D)Joe's behavior is consistent with profit maximization.
E)Joe's production function exhibits diminishing marginal product.

Question

Quizplus · Accepted Answer

Joe is not minimizing costs because he changes the combination of inputs used when prices change, indicating he is not using the least-cost combination of inputs for the given prices.

Joe's Bar and Grill Uses Two Inputs, Beer and Pretzels