I can’t figure out how to make the demand function. Q2 (20 points] Suppose that the production function is Y = ALM. Let to he the. wage rate. (a)
[bl {5: points} is the firm’s labor demand function? {5 points) Suppose that total factor productivity A = IOU and household lahnr
supplyr is L”(w} = 2.5 – w {the “‘9″ is not an exponent, L” is the labor supply).
. is the equilibrium wage rate? At the equilibrium, how much labor is used
in production and how big is output? (nt: to find the equilibrium, set labor
demand equal to labor supply and find the wage, in.) {5 points] Suppose that total factor productivity decreases to A = 90. is
the new equilibrium wage rate? At the new equilibrilnn, how much less labor is
user] in prnduetinn and how much smaller is output? {5 points] ls the percentage decrease in output bigger or smaller than the per-
centage decrease in total factor productivity?
