2. Suppose a rm uses both labor L and capital K as inputs to production. Its production function is of the CobbDouglas form, i.e. F(K, L) = KiLE The rm charges a price P for every good it sells, pays a nominal rental rate R to every unit of capital it hires and pays a nominal wage W to every unit of labor it hires. (a) Assume the rm operates in goods markets, capital markets and labor markets that are perfectly competitive - that is, it takes 1% and % as given. Derive two conditions that will need to hold in order for the rm to maximize its prots (For this, you need to calculate MPK and MPL). (b) Let us assume that labor supply is exogenously xed at L3 = 16 and focus on the capital demand equation. Plot the capital demand function when L3 = 16 (Show at least three points of the curve)