An economy's firms produce goods along the Cobb-Douglas production function: Y = A * K^0.5 * L^0.5 For it, the marginal product of a worker is MPL = 0.5 * A * K^0.5 / L^0.5, in which K = 16 Workers bargain for wage by looking at the rate of unemployment and inflationary surpise: w = 2 * EP/P *L^0.5 K = 16. The economy is in equilibrium at EP=P=1 and A=9. In it, the number of workers is L=9 and the wage is =6. Now, thanks to temporarily abundant oil, the productivity changed from A=9 to A=16. Find the new equilibrium number of workers.
1. An economy's firms produce goods along the Cobb-Douglas production function:
Y = A * K^0.5 * L^0.5
For it, the marginal product of a worker is
MPL = 0.5 * A * K^0.5 / L^0.5, in which K = 16
Workers bargain for wage by looking at the rate of
w = 2 * EP/P *L^0.5
K = 16.
The economy is in equilibrium at EP=P=1 and A=9. In it, the number of workers is L=9 and the wage is =6.
Now, thanks to temporarily abundant oil, the productivity changed from A=9 to A=16.
Find the new equilibrium number of workers.
2. Find the new equilibrium wage at A=16.
3. Graph the change in the labor
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