Equilibrium wage and rental rate in an competitive economy
Consider an economy producing a single good by a production function Y=
min(L,K) where Y is the output of the final good. K and L are input use of capital and labour respectively. Suppose this economy is endowed with 100 units of capital and labour supply s L is given by the function L(supply)=50*w, where w is the wage rate. Assuming that all markets are competitive find the equilibrium wage and rental rate.
Firstly, efficient productions are K=L, hence L quantity is produced with L units of labour and capital.
Compeitive good market requires 0 profit==>
p=w(L) plus w(K)
Consumer expenditure on good equals their earnings from labour ==