Consider an economy with the following Cobb-Douglas production function:

Y = 5K1/3L

2/3

.

a. Derive the labor demand as a function of real wage and the capital stock.

b. Suppose this economy has 27,000 units of K and L of 1,000 workers. Calculate the total

output, real wage, and the total amount earned by the workers.

c. The government of this economy imposes a minimum wage that is 10% higher than the

real wage you calculated in part b. What happens to the real wage, employment, output,

and the total amount earned by the workers?

d. Does the policy in part c help the workers? Explain.