Basil Fawlty is planning to renovate the restaurant in his hotel. The production function for new restaurant tables is given by where q is the number of restaurant tables produced during the renovation week, k represents the number of hours of table manufacturing machines used during the week, and l represents the number of worker hours employed during the period. Basil would like to provide 10 new tables, and he has allocated a budget of £10 000 for the project. a. Basil reasons that because table manufacturing machines and skilled carpenters both cost the same amount (£50 per hour), he might as well hire these two inputs in equal amounts. If Basil proceeds in this way, how much of each input will he hire and how much will the renovation project cost? b. Sybil Fawlty argues that once again Basil has forgotten his microeconomics. She points out that Basil should choose quantities of inputs so that their marginal (not average) productivities are equal. If Basil opts for this plan instead, how much of each input will he hire and how much will the renovation project cost? c. On hearing that Sybil’s method will save money, Polly, the waitress, suggests that Basil should put the savings into more tables to provide seating for more customers. How many more tables can Basil get for his budget if he follows Polly’s plan? d. Manuel, the waiter, worries that Polly’s idea will just mean more work for him in delivering food to customers. How might he convince Basil to stick to his original plan of only 10 new tables?
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