Q2 (20 points) This question generalizes the demand-supply analysis of the production module from class to the more realistic case in which the supply of labor increases in the rental price of labor. Suppose that L = 2.5 - to where w denotes the rental price of labor (wage rate). For simplicity, there is no capital and the production function is given by Y = flLo'E'. (a) (5 points) Which variables in L=2.5-w Y=AL-5 are endogenous and which variables are parameters? (b) (5 points) What is the rm's labor demand function? That is, nd how much labor the rm demands for each wage rate. (0) (5 points) Suppose that total factor productivity A = 100. Plot labor supply and demand and show the equilibrium wage, u)", and equilibrium employment, L". As is common in economics, price is placed on the vertical axis and quantity on the horizontal axis. Take note when creating your graph. THIS VERSION: AUGUST 19, 2021 1 PROF. BERTHOLD HERRENDORF m W. P. Carey Sshoal of Business Arizona State University ECN 313 , FALL 2021 (d) (5 points) Now derive analytically the equilibrium wage rate at which labor de- mand equals labor supply. In equilibrium, how much labor is used in production and how big is output