Question: Consider the matching model in a spatial context. Workers are uniformly distributed along a roadway. Each firm chooses an address along the roadway ofunit length

Consider the matching model in a spatial context. Workers are uniformly distributed along a roadway. Each firm chooses an address along the roadway ofunit length and hires two workers. The cost of commuting is incorporated intothe market wage: wage = 50 + 60 d, where d is the distance from the workerto the nearest firm.

a. Illustrate the determination of the wage in (i) a city with 4 workers (2 firms)and (ii) a city with 6 workers (3 firms), including values for the wages.

b. Suppose the industry experiences an increase in economies of scale, increasing the number of workers per firm to 3 workers per firm. Illustrate the determination of wages in a city with 2 firms and 6 workers. For the worker withthe longest commute, the wage is $[_____].

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