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Question - In your managerial role overseeing production at Cool Economic Beans, your main product is a line of baked beans. However, production involves a useful waste product: the shells from each bean can be used to produce cat litter. Suppose the cost function for Cool Economic Beans is giving by: C(Q1, Q2) = 64 - 0.25Q1Q2 + 0.25(Q1)2 + 0.25(Q2)2 and it produces 4 units of good 1 and 6 units of good 2.
a. Do cost complementarities exist for Cool Economic Beans? Justify your answer!
b. Do economics of scope exist Cool Economic Beans? Justify your answer!
c. Suppose Cool Economic Beans no longer wishes to produce cat litter. What happens to the costs Cool Economic Beans incurs to produce 4 units of good 1 and 6 units of good 2? Justify your answer!
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