(25 pts) Suppose there are 100 workers in the economy in which all workers must choose to work a risky or a safe job.

  1. (25 pts) Suppose there are 100 workers in the economy in which all workers must choose to work a risky or a safe job. Worker 1’s reservation price for accepting the risky job is $1; worker 2’s reservation price is $2, and so on. Because of technological reasons, there are only 10 risky jobs.
  2. (a) (10 pts) What is the equilibrium wage differential between safe and risky jobs? Which workers will be employed at the risky firm?

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(b) (15 pts) Suppose now that an advertising campaign, paid for by the employers who offer risky jobs, stresses the excitement associated with “the thrill of injury,” and this campaign changes the attitudes of the work force toward being employed in a risky job. Worker 1 now has a reservation price of -$10 (that is, she is willing to pay $10 for the right to work in the risky job); worker 2’s reservation price is -$9, and so on. There are still only 10 risky jobs. What is the new equilibrium wage differential?

 
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