The demand for labor in Occupation A is L_D = 20 -W, where LD = number of workers demanded for that occupation, in thousands. The supply of labor for Occupation A is L_A = -1.25 + .5W. For Occupation B, the demand for labor is similar, but the supply of labor is L_B = -.5 + .6W, which is indicative of a more pleasant environment associated with that occupation in comparison with Occupation A.

What is the compensating wage differential between the two occupations? The zero-profit isoprofit curve for Company ABC is W = 4 + .5R, where W = the wage rate that the firm will offer at particular risk levels, R, keeping profits at zero.

The zero-profit isoprofit curve for Company XY is W = 3 + .75R.

a. Draw the zero-profit isoprofit curves for each firm. What assumption about marginal returns to safety expenditures underlies a linear isoprofit curve?

b. At what risk level will the firms offer the same wage?

c. At low-risk levels, which firm will be preferred by workers? At high-risk levels, which firm will be preferred by workers? Explain.