For this memo we need to calculate optimal inputs with changes in production and input prices in a coffee shop setting. Calculating total profits will be essential in supporting the recommendation.

The memo assignment describes the situation and request a recommendation to the problem.

The case is the following:

John, I am looking into developing a new store layout to better meet demand of what the marketing department refers to as Hipsters. Theyre ordering more complex drinks instead of plain coffee and seeking a relaxed atmosphere to work remotely. We have determined that the production of sophisticated drinks follows a Cobb-Douglas production function1 to include espresso machines (m) and baristas (b). We currently sell those drinks for $2 each.

The problem is we currently only have 1 machine and 4 baristas, but I am not sure if that is the right mix. We pay our baristas $10/hour and the accounting department has determined that the hourly rental rate of the machines is $100. (Note that two small machines equal one regular machine) First, are we optimizing our resources? How many baristas should we have working?

I want to consider how we can best optimize our layout to achieve 150 drinks per hour. What would the optimal combination of espresso machines and baristas for this goal?

Lastly, those hipsters also happen to be politically active, and want to increase the minimum wage from $10/hour to a living wage of $20/hour. How would this specifically affect our store hiring decisions and production?

Youre the best because I certainly dont want to deal with this. I am looking for increased dividends so I can repaint my yacht.