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Benzema Inc. Benzema Inc. is a fastgrowing company that produces widgets by means of the production function is y = k'l. The widget market is
Benzema Inc. Benzema Inc. is a fastgrowing company that produces widgets by means of the production function is y = k'l. The widget market is very competitive. The ongoing market price for widgets is p = 10. Benzema is facing an hourly wage rate of w = 4 and a rental rate of capital 7' = 0.02. The total cost of production is currently 120. The board of directors believes that there is something wrong with the CEO's operating strategy. This is why they decided to call you in as a consultant. (a) Compute marginal product of capital and marginal product of labor. (5 points) (b) The board reassures you that the company is producing the current level of output at the minimum cost. Compute current output. (10 points) (c) You believe that Benzema could boost prots by increasing the scale of production. Compute Benzema's prot in the case in which both inputs are adjusted in such as way to double output at the minimum cost. How does it compare with its current profit? (5 points) (d) In your report to Benzema's board, what output level would you recommend? What prot you expect Benzema to make at that level of production? (10 points)
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