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A pickle farm in Texas creates a special fried pickle for their favorite bar Billion Benny's
A pickle farm in Texas creates a special fried pickle for their favorite bar Billion Benny's. As a result of their specialty product, they are not a price-taker, but instead have estimated that the inverse demand curve for their beer is: P=98-6.2QD. Their costs are C= 2.3+3.1Q+.047Q2 . Answer A-D
A. At which quantity of pickles are their average costs minimized?
B. The owners nephew has proposed that their operation produce at the value you found in part a. He argues that because their operation's goal is profit maximization, the best way to achieve that is minimize cost. Do you agree? If not, what amount do you recommend they produce instead?
C. Billion Bennys bar demand for this kind of pickle is 24 pounds. How many farms like this one could the industry support, assuming each followed the nephews advice and produced at the MES?
D. this pickle farm also grows squash and banana peppers. The overall cost of producing the squash is $76 per pound; the cost of producing the string beans is $9 per pound. The nephew again recommends inter-cropping them so they are grown together, for a total cost of $105. He thinks this can take advantage of economies of scope. Is he correct? If so, what are the cost savings achieved from producing at scope?
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