Joe\'s Bar and Grill uses two inputs, beer and pretzels. When the price of beer

Question

Joe's Bar and Grill uses two inputs, beer and pretzels. When the price of beer was $10 a case and the price of pretzels was $20 a case, Joe used 1 case of beer and 2 cases of pretzels a day. When the price of beer was $20 a case and the price of pretzels was $10 a case, Joe used 2 cases of beer and 1 case of pretzels a day. Joe produced the same output in each of these circumstances.
From this information, we can conclude:
(a) Joe has a constant returns to scale production function.
(b) Joe has a cost function that exhibits increasing returns.
(c) Joe is not minimizing costs.
(d) Joe's behavior is consistent with profit maximization.
(e) Joe's production function exhibits diminishing marginal product.

Explanation / Answer

(c) Joe is not minimizing costs.

After price changes and Joe uses the before combination of inputs he could still produce the same at lower cost of $40 as compared to what he is paying now which is $50

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