Assume That an Economy's Production Function Is Y = 1,000L^1/2,so

question 17

Essay

Assume that an economy's production function is Y = 1,000L^1/2,so when the marginal product of capital is equated to the real wage the labour demand curve is L = 250,000(P/W)².The labour supply curve is L = 31,250(W/P).The real wage that solves these equations is W/P = 2.Assume that the expected price level is 10,so that a nominal wage contract setting the wage at 20 is agreed to,making the expected real wage 2.If the price level turns out to be 10,62,500 workers will be hired and output will be 250,000.a.If the actual price level turns out to be 20,what will the actual real wage be?
b.According to the labour demand curve,how much labour will be demanded if the actual real wage is at the level given in part a?
c.According to the production function,if the amount of labour given in part b is actually hired,how much will production be?

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Definitions:

Restricted Policy

A restricted policy typically involves limitations or controls set on certain actions or decisions within an organization, aiming to comply with regulations, reduce risk, or achieve specific goals.

Relaxed Policy

A financial strategy or policy that is less strict or rigid, often implying a more liberal approach to lending, investing, or managing assets.

Trade Credit

The arrangement between businesses to buy goods or services on account, paying the supplier at a later date.

Effective Annual Cost

Effective Annual Cost denotes the total cost of financing on a yearly basis, incorporating fees and interest rates to reflect the true annual cost of borrowing.