Reference no: EM132813003

Consider the possibility of migration between cities. Suppose a region's workforce of 14 million is initially split equally between two cities, X and Y. Further suppose that utility is measured in dollars (along the vertical axis) and that the urban utility curve peaks at 4 million workers in both cities. Beyond that point the slope is -$3 per million workers.

The initial equilibrium utility level is $60. Suppose city X experiences technological innovation that shifts its utility curve upward by $12. That is, at every population size, utility is $12 higher than before the technological change.

a. Draw a pair of utility curves, one for X and one for Y, and label the positions immediately after the innovation (before any migration) as x for city X and y for city Y. Use arrows along the curves to indicate the migration that follows.

b. In the new equilibrium, the utility level is $__and the population of X is __ million, while the population of Y is __ million.