Question

1.)

You are the manager of Archer-Daniels Midland Company (ADM). ADM uses corn to

produce high fructose corn syrup (HFCS) and corn oil (e.g., Mazola). Assume that the

production of corn oil is positively related to the production of oil. Write out a cost

function and show that there are cost complementarity and economies of scope in the

production of HFCS and corn oil.

2.)

Given the solution to problem 1, assume that you would like to increase production of

HFCS and corn oil. So you have decided to add night-shift to the production of these two

products. The justification you have given your boss is that adding the night-shift does

not increase fixed costs in the short-run. Based on economic theory, explain your

justification.

Answer 1