Exercise 1. Production function model (so points} Consider an eoonomtir with a representative household that consists of 500 workers and owns $100 million ofcapital (I = 500,}? = 100}. There is a representative firm with a Cobb-Douglas production function that rents capital and hires labor to produce. Assume that the TFP parameter equals one iA=1L and we have that Y = K1121.\" 2. h t h ram t r a = 1 2 is different than usual. Markets are competitive. l" {10 points] solve for the equilibrium. You should get numbers for {V,K.L.r.Wl- 2. {10 points} Plot the rental price of capital {Y-axisl against capital per capita {ll-axis}. And show with an "x\" the point that characterizes the equilibrium. I In this plot rental price (r) and capital p.c. (it) are your variables. 3. {5 points} Calculate the labor share (share of labor income in total income} for this economy. 4. {5 points} Why is that economists use the parameter a = 1f3 as the standard value in their models