Assume that two municipalities (in the same province) have different demand curves for firefighters and can hire firefighters at the same constant marginal cost.

a. Draw diagrams illustrating the demand curves and how many firefighters would be hired by each of the two municipalities.

b. As a result of amalgamation, assume that each of the two municipalities is required to hire the same number of firefighters, and that the number hired in each municipality is the average of the number hired before amalgamation. Show the loss in welfare resulting from the requirement that the two municipalities hire the same number of firefighters.

c. Show how the magnitude of the welfare loss may be affected by the elasticity of the demand curves in the two municipalities.