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Homework answers / question archive / Suppose that economy has 25 units of capital and a labor force of 100 workers
Suppose that economy has 25 units of capital and a labor force of 100 workers. The production function is given by Y = VKL. 1-2. Set up the optimization problem of the firm to derive the equation describing labor demand as a function of the real wage and the capital stock. 3. Suppose that wage is set at a full employment level. What will be the output? 4. What is the total amount earned by workers in this equilibrium? 5. Suppose that government becomes concerned about low earnings of working class and sets wages at 0.5. How many workers will firms hire at this rate? 6. What is the new output level at wage of 0.5? 7. What is the unemployment level at wage of 0.5? 8. What are total earnings at wage of 0.5? 9. Is this government policy helping the working class? Explain in 5-15 words. 10. Suppose that Marginal Product of labor is 1/3. How many workers have firm hired at this rate?
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