Short Question 2: (20 points) 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 = furl/5L4\" Assume that the supply of all inputs are exogenous and equal to I) and K. Perfectly compet- itive rms are price-takers and choose how much capital and labor to demand by maximizing prots. Let it) and 1' denote the wage and rental rate of one unit of labor and capital respec- tively. (c) Show that the solution for output per capita can be written as y = Akl/5. Observed GDP per capita is 3 in this economy. Capital per person is 32. If A = 1, what does this model predict for GDP per person? Does this model over-predict or under-predict GDP? Show your working. (5 points) (d) If the model is to explain the observed value of y, what must TFP (A) be equal to? Briefly explain why TFP might vary across countries. (5 points)