Firms Firms operate as they always have with one crucial exception. Firms must finance the wage bill from their production by borrowing from the banks. This is called "working capital. Once output is sold, the firms must pay back the wage bill to banks at interest rate ri. In other words, firms maximize the following profits: max AK9L-a rf welt-rake 1. Derive the first order conditions for the firm. If you need help with the calculus, let me know. 2. How does the labor first order condition differ from the standard firm model? 3. What would a higher rf imply about the amount of labor the firm demands for a given we? (a) What would this imply about equlibrium output? 2 Firms Firms operate as they always have with one crucial exception. Firms must finance the wage bill from their production by borrowing from the banks. This is called "working capital. Once output is sold, the firms must pay back the wage bill to banks at interest rate ri. In other words, firms maximize the following profits: max AK9L-a rf welt-rake 1. Derive the first order conditions for the firm. If you need help with the calculus, let me know. 2. How does the labor first order condition differ from the standard firm model? 3. What would a higher rf imply about the amount of labor the firm demands for a given we? (a) What would this imply about equlibrium output? 2