Question

Two firms, Wickedly Efficient Widgets (WEW) and Wildly Nepotistic Widgets (WNW) both produce widgets using the same production function: Q(KL)K1212 where K is the amount of machine-weeks of capital services used, and L is the number of person- weeks (of standard, semi-skilled labour) used. Each firm pays $25 per machine-week of capital, and $100 per person-week of labour used. Each firm produces 16 widgets per week. WEW chooses its input combination to produce in the cheapest way possible. Although it produces the same output per week as WEW, WNW is required by its CEO, the head of a large family, to employ twice as much labour as does WEW (which ensures that the CEO's many grandchildren have jobs). How much higher is the total cost (per week) of WNW than the cost per week of WEW? 1) (Cost at WNW - Cost at WEW) is less than $100 2) (Cost at WNW - Cost at WEW) is at least $100 but less than $250 3) (Cost at WNW - Cost at WEW) is at least $250 but loss than $500

Answer 1

o-K','' At optionally MRTS = W/ mp = h = = = 100 = 4 [K:42 21 put in o = 16 = kha (40'lik a - 16 8 4 k=32 R = whark=8 Cloo)+32/25)=800x800 =1600 2 www, 16116) 16 16 then K- keer 16116 2 2= 16 then 2 R= 16/100)+16125) = 1600+400 = 2000 ç Mcs ans is