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Suppose the aggregate production function for a country is given by: Y = A K^0.5 N^0.5, where Y = total output, A = total factor productivity, K = capital and N = labour. Also, suppose the aggregate labour supply for the country is given by w= Ns / 5, where w denotes the real wage and NS denotes aggregate labour supply. Assume that the price level P = 1.
(a) Using calculus derive an expression for aggregate labour demand. Express aggregate labour demand as a function of real wage (w).
(b) Assuming A =20 and K =50, solve for equilibrium real wage (w) and full-employment level (N)
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