Consider an economy with the following Cobb–Douglas production
function: Y=5K1/3L2/3.
a. Derive the equation describing labor demand in this economy
as a function of the real wage and the capital stock. (Hint :
Review Chapter 3.)
b. The economy has 27,000 units of capital and a labor force of
1,000 workers. Assuming that factor prices adjust to equilibrate
supply and demand, calculate the real wage, total output, and the
total amount earned by workers.
c. Now suppose that Congress, concerned...