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University of Rome.
In writing this Comment, we have benefited from discussions with F. Carlucci, F. Casprini, G. Martinengo, C. Milana, and M.L. Petit, who, however, bear no responsibility for the final version.
Desired investment depends on the excess of the marginal product of capital over the real expected interest rate. Incidentally, any textbook will show that in a Cobb-Douglas function the marginal product of capital is not equal to the average product, as Tullio wrongly states, but to the average product multiplied by the (constant) elasticity of output with respect to capital.
Letting, as Tullio does, (β39 = β40 = 1, the demand for labor is determined by equating the marginal product of labor to the real wage rate.