Question

A factory produces a soft drink using two ingredients, aspartame (A) and carbonated water (C) in fixed proportions and the production function is y=min{A/6,C/12}

a). Does this production function exhibit constant, increasing or decreasing returns to scale? Explain.

b) Write down the factory's cost minimization problem and solve for the conditional factor demands, A(wA,wC,y) and C(wA,wC,y).

c) Find the long run cost function.

Answer 1