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Consider a region where the self-suffi cient wage is constant at $4. Suppose the payoff from innovation in a city with population n (measured in thousands) is ( n ) 2 n 12 (n 10 ).
a. Suppose a group of 1 (thousand) workers form a city. Will other workers have an incentive to join the cluster?
b. Suppose a group of 9 (thousand) workers form a city. Will other workers have an incentive to join the cluster?
c. Compute the (stable) equilibrium size of the innovation city.
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