Douffelberry juice is a mild intoxicant, prized for facilitating conversation among university administrators but not otherwise valued.The berry does not travel well,so it must be squeezed on the farm where it is grown.Baskets of berries, B, are produced using ounces of seeds, S, and hours of labor, L, according to a production function B =S^1/2L^1/2.Gallons of juice, J, are made from baskets of berries and hours of labor according to the production function J =min{B, L}.If seeds cost $9 per ounce and labor costs $9 per hour, what is the cost of producing each gallon of douffelberry juice? A)$27 B)$54 C)$9 D)$18 E)Since there are not constant returns to scale, the cost per gallon depends on the number of gallons produced.

Question

Quizplus · Accepted Answer

The cost of producing each gallon of juice is $27 because the production function J = min{B, L} implies that to produce 1 gallon, you need 1 basket and 1 hour of labor. The cost of producing 1 basket is $18 (using 1 ounce of seeds and 1 hour of labor), and the additional hour of labor for juicing costs $9, totaling $27.

Douffelberry Juice Is a Mild Intoxicant, Prized for Facilitating Conversation