Suppose the production function is F(K, L) = KDL 1 where K is capital, L is labor and D is land. Capital, land and labor are all supplied inelastically: K, D, L. Let K = 4, D = 1 and L = 1 and = 0.5, = 0.1.

1. Set up the firms' profit maximization problem. What is labor demand for the firm? That is, as a function of real wages W P , capital, K and land, D, how much labor do firms want? What is capital demand? What is land demand?

2. In general equilibrium (i.e. resolving that K = K , D = D) how much labor will there be?

3. In general equilibrium (i.e. resolving that K = K , D = D) what will the price of labor (i.e. real wage W P ) will there be?

4. Does income add up to output? Show it.

5. What fraction of income goes to labor?

\f4. Does income add up to output? Show it. 5. What fraction of income goes to labor