Consider the talent allocation mode by Murphy, Shleifer, & Vishny (1991).

a. At the profit-maximizing level of human capital: = , why is it that more able entrepreneurs run larger firms?

b. If common state of technology is 5, productive production function is 2H0.5, the ability of the entrepreneur running the firm is 10, and workers wage is 10, find the level of workers human capital that maximizes the firms profit.

c. If common state of technology is 2.7, productive production function is 10H0.5, human capital is 25, and workers wage is 10, find the minimum entrepreneurial ability needed to run the firm.

d. What does %() % > %() % mean? Give examples.

e. What does %() % > %() % mean? Give examples.

f. What are the effects on talent allocation and long-run economic growth when %() % > %() % ? And when %() % > %() % ?

g. What are the effects of reducing rent-seeking on talent allocation and long-run economic growth when %() % > %() % ? And when %() % > %() % ?

h. Do the authors find empirical support for the effect of talent allocation on economic growth? What did they find?