Question: Suppose in SMU nation. The production function is: Y = AK0.5 L0.5, Derive a expression for labor demand as a function of wage rate

Suppose in SMU nation. The production function is: Y = AK0.5 L0.5, Derive a expression for labor demand as a function of wage rate L = F(w). Assume A = 1, K 100, but SMU government do not know how many labors in market. Nonetheless, government observes that market wage w* = 2. Given these information, 1. How much is labor supply L in SMU? (remember, L = L at equilibrium) 2. How much is rental rate R? Suppose there is an immigration inflow increase labor supply to 9. What is new equilibrium wage w? Suppose government plan to impose a mandatory minimum wage law such that win w*. What will happen to labor demand L4, will it cause unemployment? if so, by how much? There is an economist in government proposed an alternative solution. Instead of minimum wage law, we can increase our capital stock to maintain previous wage w*. Is that a reasonable solution? if so, by how much increasing in K can achieve that goal?

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