A labor market consists of 20 workers that get disutility from dirty jobs. These workers can...

 

Transcribed Image Text:

A labor market consists of 20 workers that get disutility from "dirty" jobs. These workers can choose to work at one of two firms. At Firm 1. demand for labor is perfectly inelastic. meaning it will pay any wage to fill its 10 "dirty" jobs (i.e.. p= 1). At Firm 0. jobs are "clean" (i.e.. p 0), and the firm will hire everyone willing to work at the going wage (demand is perfectly elastic). a. Half of the workers have a reservation price of $2/hour. The other half have a reservation price of $20/hour. Which workers will be employed at Firm 0. and which at Firm 1? b. Suppose Firm 0 pays $10/hour What wage will be paid at Firm 12 Briefly explain your reasoning. c. Firm 1 expands. It now demands 11 workers elastically. What wage will be paid at Firm 0? What wage will be paid at Firm 17 Briefly explain your reasoning. d. One of the workers with a reservation price of $20 moves to a different city. The worker is replaced by a much more risk-averse worker who has a reservation price of $1,000/hour. What happens to the average reservation price in the labor market? What happens to the wages offered by Firm 0 and Firm 1? Explain your findings. A labor market consists of 20 workers that get disutility from "dirty" jobs. These workers can choose to work at one of two firms. At Firm 1. demand for labor is perfectly inelastic. meaning it will pay any wage to fill its 10 "dirty" jobs (i.e.. p= 1). At Firm 0. jobs are "clean" (i.e.. p 0), and the firm will hire everyone willing to work at the going wage (demand is perfectly elastic). a. Half of the workers have a reservation price of $2/hour. The other half have a reservation price of $20/hour. Which workers will be employed at Firm 0. and which at Firm 1? b. Suppose Firm 0 pays $10/hour What wage will be paid at Firm 12 Briefly explain your reasoning. c. Firm 1 expands. It now demands 11 workers elastically. What wage will be paid at Firm 0? What wage will be paid at Firm 17 Briefly explain your reasoning. d. One of the workers with a reservation price of $20 moves to a different city. The worker is replaced by a much more risk-averse worker who has a reservation price of $1,000/hour. What happens to the average reservation price in the labor market? What happens to the wages offered by Firm 0 and Firm 1? Explain your findings.

Answer rating: 100% (QA)

a ANSWER The workers with the reservation price of 2hour will be employed at Firm 0 and the workers ... View the full answer