Economics 421 Problem Set 5 ( these are for practice only ) 1. This is about the hedonic market for safety. Suppose that workers have utility functions that depend on earnings and safety, both of which are goods. Firms ’ profits depend on workers ’ earnings and safety " but both of these reduce profits # . Draw the indifference curves for two workers: one who is willing to give up a lot of earnings for safety, and one who is not. Draw the isoprofit curves for two firms: one which finds it very costly to provide safety, and one which finds it less costly. 2. Two firms are identical, except in how many workers die on the job each year. Each has a workforce of 2,000. At the first firm, there are 2.5 fatalities per year " on average # ; at the second firm, there are 4 fatalities per year. Workers at the first firm are paid $32,000/year apiece; workers at the second firm are paid $36,000. Assuming that all of the difference is to compensate workers for risk, calculate the
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This note was uploaded on 03/19/2010 for the course ECON 480 taught by Professor Kinlaw during the Spring '08 term at UNC.