Question

In: Economics

Consider a region with two cities and a total workforce 24 = A+B, where A is...

Consider a region with two cities and a total workforce 24 = A+B, where A is the workforce
in city 1 and B is the workforce in city 2. For the negatively sloped portion of the utility
curves,

u(A) = 480 / A
; u(B) = 240 / B

1. Calculate the regional equilibrium values of the population for each city and regional utility.
Recall the conditions required for regional equilibrium: equalized utility (no one has
an incentive to move) and fixed population at a regional level.
2. Now, suppose technological innovation in the first city shifts the utility curve upward,
so along the negatively sloped portion u(A) = 720/A. Calculate the new equilibrium
populations and regional utility.
3. One more worker wanders into this region and chooses City B at random. What is
the resulting difference in utility between the two cities? Describe the process of these
cities trying to find a new equilibrium (and whether they will).

Solutions

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Rahul Sunny answered 1 year ago
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