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3. In the Romer model, the first-order conditions for the profit-maximizing firms imply (amongst other things) that L(i) = po 14 and p(i) =. Also,
3. In the Romer model, the first-order conditions for the profit-maximizing firms imply (amongst other things) that L(i) = po 14 and p(i) =". Also, the equilibrium output (per capita) growth is max . -O'BL - (1 -$)p,0) (a) In words, provide an economic interpretation for the decision by output good firms about how much labour to employ in producing output (i.e., L(i)). (2 points) (b) Given $ determines the substitutability among labour inputs in the Ethier production function, with higher $ corresponding to more substitutability, what is the economic interpretation of the exponent 7 in the expression L(1) = pig and what does it imply about the price, p(i), an R&D firm can charge for use of its labour services L(i) relative to its marginal costs? (3 points) (c) Why is there no endogenous growth if the discount rate p > " BL? (Hint: What does the discount rate p imply about present value discounting?) (2 points)
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