Pucker Lemonade, Inc. is a small company that produces bottledlemonade. Pucker\'

Question

Pucker Lemonade, Inc. is a small company that produces bottledlemonade. Pucker's fixed cost includes the monthly rental cost ofthe lemon-smashing machines, the bottling machines, and theproduction plant. Pucker's variable cost is the cost of otherinputs--lemons and other ingredients, maintenance of the machines,and wages of the employees who work at the plant. The followingtable shows Pucker's estimated cost for output, measured intruckloads of lemonade that the company produces eachmonth.

Number of Lemon-Smashing Machines Fixed Cost Variable Cost 10 truckloads 20 truckloads 30 truckloads 4 $16,000 $5,000 $8,000 $34,000 5 $22,000 $4,500 $6,000 $30,000 6 $28,000 $3,500 $5,500 $29,000

Explanation / Answer

Pucker Lemonade, Inc is profit making business, so it will try to minimize cost. In the long-run, it will produce at the point where long-run average cost is minimum.

Hence, in order to produce 20 leamonade with least cost, it should employ 6 machine

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