Two firms, Wickedly Efficient Widgets (WEW)and Wildly Nepotistic Widgets (WNW), both produce widgets, using the same production function y = K^1/2L^1/2, where K is the amount of labor used and L is the amount of capital used.Each company can hire labor at $1 per unit of labor and capital at $9 per unit.Each company produces 90 widgets per week.WEW chooses its input combinations to produce in the cheapest way possible.Although it produces the same output per week as WEW, WNW is required by its dotty CEO to use twice as much labor as WEW.How much higher are WNW's total costs per week than WEW's? A)$270 B)$67.50 C)$275 D)$135 E)$132

Question

Quizplus · Accepted Answer

WNW's total costs are higher by $135 per week than WEW's due to the requirement to use twice as much labor, which increases their production costs.

Two Firms, Wickedly Efficient Widgets (WEW)and Wildly Nepotistic Widgets (WNW)