1. Suppose a firm has been awarded a contract for a job that will produce $1.4 million in revenue. The job will require 20 workers with a can-do attitude and a sense of wonder. There will be frequent drug-testing to ensure that the can-do attitude is all-natural. The company is deciding what level of safety (x) to have workers operate under, where x varies from 0 (warehouse of horrors) to 100 (accident-free zone). The total cost of providing safety level x is given by the function: safety cost = 60x2.

a. (3 points) How much will it cost to provide the first unit of safety? How much will it cost to provide the last unit of safety (the 100th)? Sketch a graph and explain the intuition behind the marginal cost function.

b. (3 points) The job will last for 1 year and each worker will be paid according to the function: annual salary = 70,000 450x. The company has determined this is the salary that is needed to hire the necessary number of workers at different conditions. Assuming all workers have the same preferences and must operate under the same working conditions, what level of safety will the company use to maximize profits? If workers (and their safety) are the only costs for the company, how much profit will they make? (Calculus! Or Excel!)

c. (4 points) Discuss what will happen if the government regulators demand that the level of safety be set at 90. How will this impact the salary and utility levels of workers? How will this impact the firm? Overall, has this improved welfare in the economy? Explain. d. (3 points) Ignore the potential regulation from part c. Suppose the company can get the job done with 16 workers. What is the new level of safety chosen, and how does this compare to when there are 20 workers? Briefly explain the intuition behind why the optimal level of safety changes when the number of workers changes.