Question: 3. (7 points) Utility. Suppose we have two cities, 1 and 2. Assume every individual has the same utility function given by: u(wj,r;) = 4*wj

3. (7 points) Utility. Suppose we have two cities, 1 and

3. (7 points) Utility. Suppose we have two cities, 1 and 2. Assume every individual has the same utility function given by: u(wj,r;) = 4*wj - 0.75 * r; where j = 1 or j = 2. Furthermore, for all parts of the problem assume the total population is fixed at 1, 000 and wages in each city are given by: w1 = 15 W2 = 12 (a) (1 point) What is the utility from each choice if r1 = 20 and r2 = 15. Is this an equilib rium? How do you know? (2 points) (b) (2 points) For the rest of the problem you can now assume that rents are increasing in the population of each city. Specifically, assume ri(L1) = 4 * L1 and r2(L2) = 8 * L2. Compute the equilibrium population of each city equilibrium rents. (2 points)

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