1. A consulting firm has just finished a study for a manufacturer of wine. It has determined that an additional man-hour of labor would increase wine output by 1000 gallons per day. Adding an additional machine hour of fermentation capacity would increase output by 200 gallons per day. The price of a man-hour of labor is $10 per hour. The price of a machine-hour of fermentation capacity is $0.25 per hour. Is there a way for the wine manufacturer to lower its total costs of production and yet keep its output constant? If so, what is it?

2. What is the difference between economies of scope and economies of scale? Is it possible for a two-product firm to enjoy economies of scope but not economies of scale? Is it possible for a firm to have economies of scale but not economies of scope?