To get a perimeter of 10, we know that two sides would already equal 9 (4.5+4.5). That means we only have 1 inch for the other two sides, so they are each 1/2 inch.
That leaves the second rectangle with a length and width of 4.5 and 4.
Factory owners would consider the Type I error worse, because the assembly process will be halted while it shouldn't have been and thus they will lose money.