Assume that the production function of an economy is given by : Y = A(100N-0.5N) note: O.5N is squared
Where Y is output, A is productivity, and N is total hours worked. The marginal product of labour
associated with this production function is ;
MPN =A(100-N). Initially , A=1.0, but a beneficial productivity shock raises A to 1.1.
The supply of labour is NS =45+0.1w where w is the real wage. Fnd the equilibruim levels of output, hours worked, and the real wage before and after the productivity shock.