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

question 6

Multiple Choice

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 $1 per unit.Each company produces 10 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)$5
• B)$10
• C)$15
• D)$2.50
• E)$2

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Definitions:

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