Question: Consider the production model studied in Chapter 4. Final output in the economy is pro- duced using capital K and labor L. The production function

Consider the production model studied in Chapter 4. Final output in the economy is pro- duced using capital K and labor L. The production function is: Y = AK1/4[3/4 Assume that the supply of all inputs are exogenous and equal to L and K. Perfectly compet- itive firms are price-takers and choose how much capital and labor to demand by maximizing profits. Let w and r denote the wage and rental rate of one unit of labor and capital respec- tively. (a) What are the 5 endogenous variables in this model? Also list the exogenous variables and the parameters and provide a brief explanation of each. (5 points) 4

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