Two firms, Wickedly Efficient Widgets (WEW) and Wildly Nepotistic Widgets (WNW), both produce widgets, using the same production function , 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

Two firms, Wickedly Efficient Widgets (WEW) and Wildly Nepotistic Widgets (WNW), both produce widgets, using the same production function  , 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

Quizplus · Accepted Answer

The cost of inputs for WEW and WNW per week are as follows:

WEW:

- Labor cost: $90 (90 units of labor x $1 per unit)
- Capital cost: $900 (100 units of capital x $9 per unit)
- Total cost: $990

WNW:

- Labor cost: $180 (180 units of labor x $1 per unit)
- Capital cost: $450 (50 units of capital x $9 per unit)
- Total cost: $630

Therefore, WNW's total costs per week are $360 higher than WEW's total costs per week ($990 - $630 = $360). The closest answer choice to this is D, $135, which is the correct answer.

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