Wickedly efficient widgets and wildly nepotistic widgets

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Reference no: EM13737807

Two firms, Wickedly Efficient Widgets (WEW) and Wildly Nepotistic Widgets (WNW), produce widgets with the same production function y =K^(1/2) L^(1/2), where K is the input of capital and L is the input of labor. Each company can hire labor at $1 per unit and capital at $1 per unit. WEW produces 10 widgets per week, choosing its input combination so as to produce these 10 widgets in the cheapest way possible. WNW also produces 10 widgets per week, but its dotty CEO requires it to use twice as much labor as WEW uses. Given that it must use twice as many laborers as WEW does and must produce the same output, how much larger are WNW’s total cost than WEW’s?

a) $5

b) $10

c) $15

d) 2.5

e) $2

Reference no: EM13737807

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