1. Consider a standard RosenRoback model Suppose there are two cities, LA and Firesno (FE), and that LA initially has a larger producer amenity {See Figure 1 below). CrniPrni 'I'rn 'I'u Labor Income [ Firms are perfectly competitive in our model, which implies that they all have the same cost per unit of output. a. [5 pts] How is it pomible for some rms to pay higher wages and still have the same cost per unit of output? i.e. The unit cost of production of rms both in LA and FR is equal to 1 but wages in LA are larger { yr\"; 3? yrn) h. [12 pts] Now suppose that as part of production, rms emit pollution that acts as an endogenous consumer disamenity (negative amenity). Assume that the effect of pollution on the local amenity lewl depends on the total amount of pollution emitted locally which is proportional to total output (LA is a larger city than Fl'esno). Show how this changes the equilibrium in the graph. c. [5 pts] How has this changed the relative size of the two cities in equilibrium