1. At Lumberjacks R Us logging company, the demand for field workers is L = 2000 -100W, and the supply of labor is given by L = -600 + 50W, where L is the number of employees and W is the wage. For warehouse workers, the demand is the same, but the supply is L = -150 + 60W.

1. Which position has a higher wage?

2. What is the compensating wage differential between the two occupations?

3. If all job characteristics between field workers and warehouse workers are the same except for the risk of injury, what can you conclude about risk level for each position?

2. The Alpha Company has a profit-maximizing isoprofit curve given by W = 4 + 0.5R, where W is the wage rate and R is the risk of injury to workers. Beta, Inc. maximizes profits at isoprofit curve W= 3 + 0.75R.

1. Graph the isoprofit curves and indicate the offer curve.

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

3. Which firm will be preferred by workers who are risk averse? Explain why.

(Note: These linear isoprofit curves imply constant marginal returns to safety expenditures. This differs from our explanation in class of diminishing marginal returns, but it simplifies graphing.)