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Questions › IIT JAM › IIT JAM 2021 › Q58
2 marksMacroeconomics › Classical macroeconomics › The classical labour market and employmentHardabout 3 min

IIT JAM 2021 Question 58: Classical macroeconomics

The aggregate production function is Y=10N−0.005N2Y = 10N - 0.005N^2Y=10N−0.005N2, where NNN is labour input, and labour supply is N=55+5wN = 55 + 5wN=55+5w with www the real wage. Assuming perfectly competitive labour and product markets, the equilibrium real wage is _______ (in integer).

Answer and worked solution

Answer: 9

Labour demand comes from the real wage equal to the marginal product of labour: w=10−0.01Nw = 10 - 0.01Nw=10−0.01N. Labour supply is w=N−555w = \dfrac{N - 55}{5}w=5N−55​.

Equating, 10−0.01N=N−55510 - 0.01N = \dfrac{N - 55}{5}10−0.01N=5N−55​ gives N=100N = 100N=100, and then w=100−555=9w = \dfrac{100 - 55}{5} = 9w=5100−55​=9. The answer is 999.

Plain-text version

The aggregate production function is Y = 10N - 0.005N², where N is labour input, and labour supply is N = 55 + 5w with w the real wage. Assuming perfectly competitive labour and product markets, the equilibrium real wage is _ (in integer).

Also written as: The aggregate production function is Y = 10N - 0.005N^2, where N is labour input, and labour supply is N = 55 + 5w with w the real wage. Assuming perfectly competitive labour and product markets, the equilibrium real wage is _ (in integer).

Classical macroeconomics has come up 35 times in 7 exams since 2008.

What this question tests

This question is on The classical labour market and employment, part of Classical macroeconomics in Macroeconomics.

How flexible wages clear the labour market and fix employment and output.

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