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Q. Wine production
In wine production, raw materials (grapes) are the single biggest cost. The cost of the grapes may be as much as 60% of total production costs but varies greatly from lower-quality inexpensive wines to the highest quality wines. The second-highest cost for many vintners is the barrels used to ferment the wine. French oak barrels cost as much as $700 apiece as well as last only a few years. The other major production cost, other than the actual physical plant where the winemaking occurs, is time. Quality wines spend 2-2 ½ years aging in barrels as well as then an additional 8 months in bottles before being ready for sale.
(a) How much substitutability do you assume exists between inputs in winemaking? How might this factor affect efforts to cut costs?
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