In the Solow model, markets are competitive, and production exhibits constant returns to scale. As a result, factors of production are rented by firms at marginal revenue product, and firm profits are zero. Here's a simple problem to see why. Suppose you are a firm with production function Y = al. You buy labour at wage w, and sell your output on the open market at a price of p. You are a price taker in all markets. Without loss of generality, we normalize prices so that p = 1. a) For a given wage rate w, find the: 1. Profit-maximizing output Y . 2. Profit-maximizing labour demand _. 3. Total profit Note: "Infinity" is a potentially valid answer. b) Now suppose that labour markets are competitive. Find the: 1. Market-clearing wage 2. Firm profits at that wage c) Now we allow for increasing returns to scale. The production function is Y = al . For a given wage rate w, find the: 1. Profit-maximizing output Y . 2. Profit-maximizing labour demand _. 3. Total profit Will there be a market-clearing wage