q Consider an economy producing a single good by a production function
Y = min {K, L}
where Y is the output of the final good. K and L are input use of capital and labour
respectively. Suppose this economy is endowed with 100 units of capital and
labour supply Ls is given by the function
Ls = 50 ,
where w is the wage rate.
Assuming that all markets are competitive find the equilibrium wage and rental
rate.
Hi...ISI right?...see,assuming full employment ...we have k=100..hence.L must be 100...but L= 50w..hence w must be 2....now the at the equilibrium l and K, in the neighbourhood of (100,100) the MPK of K is will be 1. hence the real rental rate will be 1.
Locked
