Consider a market \"offer curve\" that is concave (from below). Where along this

Question

Consider a market "offer curve" that is concave (from below). Where along this curve is Sheldon's utility likely to be maximized? Compare this to where Shelby is likely to maximize utility. I Explain. The demand for labor in Occupation A is L_d = 20 - W, where L_d = 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_g = -.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 is profit 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 is profit curve for Company XY is W - 3 f .75/?. Draw the zero-profit is profit curves for each firm. What assumption about marginal returns to safety expenditures underlies a linear is profit curve? At what risk level will the firms offer the same wage? At low-risk levels, which firm will be preferred by workers? At high-risk levels, which firm will be preferred by workers? Explain.

Explanation / Answer

For any occupation, equilibrium wage rate is found out by equating labor demand to labor supply.

For occupation A,

LD = LA

20 - W = - 1.25 + 0.5W

1.5W = 21.25

W = 21.25 / 1.5 = 14.17

For occupation B,

LD = LB

20 - W = - 0.5 + 0.6W

1.6W = 20.5

W = 20.5 / 1.6 = 12.81

Compensating wage differential = 14.17 - 12.81 = 1.36

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