Douffelberry Juice Is a Mild Intoxicant, Prized for Facilitating Conversation

question 3

Multiple Choice

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 $16 per ounce and labor costs $1 per hour, what is the cost of producing each gallon of douffelberry juice?

• A)$18
• B)$8
• C)$4
• D)$9
• E)Since there are not constant returns to scale, the cost per gallon depends on the number of gallons produced.

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Definitions:

Savings

The portion of income not spent on current expenditures and set aside for future use.

Investment

The action of dedicating resources such as capital, time, or effort to a particular venture with the expectation of achieving a beneficial return.

Productivity

A measure of the efficiency of production, often quantified as the ratio of outputs to inputs in the production process.

Adaptive Hypothesis

A theory suggesting that individuals adjust their expectations based on past experiences and gradually adapt to the reality of market conditions.