Question: Suppose that Ted wants to make use of his East-LA backyard. He wants to grow up spinach. He got a bunch of baby spinach plants from his girlfriend so at this stage his only concern is whether to use fertilizer or organic manure. He has been told that 1 pound of fertilizer (F) can yield 20 spinach plants (S) and that 1 pound of manure (M) can yield 30 spinach plants, no matter how much of each has been used so far. (a) What is Ted’s production function? That is, what is Qspinach(M,F)? (b) Does this function exhibit constant, increasing, or decreasing returns to scale? (c) Suppose that a pound of fertilizer sells for $5 and a pound of manure sells for $10. If Ted’s goal is to produce 300 spinach plants the cheapest way he can and sell these at the local farmer’s market, how much fertilizer and manure should he get? (d) What’s the cost of doing this? (e) What would be your answers to (c) and (d) if the price of fertilizer were $10 as well? (f) What are the Average and Marginal products of fertilizer and manure? For each of these two inputs, when would average and marginal product coincide? When wouldn’t they coincide?

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