Assume that a rm has a two-period planning horizon and operates in perfectly competitive output and labour markets. Suppose that the expected output price is P0 = P1 = $20, where the subscripts 0 and 1 refer to the time period (ie, 0 refers to the current period and 1 refers to the next period). The market interest rate is r. Suppose the rm's production function is Q = 10W where N is the number of workers employed by the rm in each period. Note that the marginal product of labour is MPP = 5 * (N) '05. a. Assume that there are no hiring costs. Calculate VMPO and VMP; and then write down the relationship between VMPg, VMP; and W0 and W; in this two-period model. (4 marks) b. Suppose that the interest rate is ve percent (ie, r = 0.05) and that the market wage is We = W1 = $10 per worker. Calculate the optimal employment level in both periods. (2 marks) 0. Without any calculation, briey discuss how each of the following changes affects the employment level (both existing employees and hiring new workers) in each period. (6 marks) i. The output price is lower than expected in the next period (ie. t=1). ii. There is an unexpected training cost at the beginning of next period for new workers. iii. At the beginning of current period, the government informs rms that there will be a layoff tax in both periods, paid by the rms when they layoff a worker