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A region has 7 million workers. There are two cities A and B. How utility varies with population in each city is described in the

A region has 7 million workers. There are two cities A and B. How utility varies with population in each city is described in the table below.

Workers (millions)

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Utility ($) in City A

80

94

105

115

120

115

108

100

90

75

Utility ($) in City B

80

92

102

110

108

100

88

75

62

48

(a) Draw the two utility curves for cities A and B in a single diagram.

(b) In equilibrium, how many workers are in city A and how many in city B? What is the utility level?

(c) A technological innovation in city B greatly increased worker productivity and earnings in the city. This increased utility by $20 at city B for every population level. Over time, this region will reach a new equilibrium. Now how many workers are in city A and how many in city B? What is the utility level?

No need to answer part a

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