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1. Suppose that the demand side of a competitive labor market consists of 100 medium-sized employers, each with daily labor demand curve Ed = 200

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1. Suppose that the demand side of a competitive labor market consists of 100 medium-sized employers, each with daily labor demand curve Ed = 200 - w, and 10 large employers, each with daily labor demand curve Ed = 2000 - 10w, where Ed is the number of workers demanded per day when the daily wage per worker is w. Suppose that the supply side of this labor market consists of 20,000 potential workers, whose reservation values for total daily compensation are distributed uniformly over the interval [100,200]. At any compensation level above the reservation value, each worker supplies one unit of labor per day; at any compensation level below the reservation value, each worker supplies zero units of labor to the labor market. a. Find the market labor demand curve and the market labor supply curve. b. Find the competitive labor market equilibrium. How many workers are employed in each type of firm? c. In an effort to improve public health, the government requires that all employers provide health club memberships to all of their employees. Suppose that the cost of providing this benefit for each firm is $10 per day per worker and that the value of this benefit to each worker is $6 per day. Find the new labor market equilibrium (i.e., total employment, the daily money wage per worker, the daily per worker cost of employment to firms, and the daily value of employment to workers). Again, how many workers are employed in each type of firm? d. Repeat part (c), now making the additional assumption that large firms can purchase health club memberships in bulk, thereby lowering large firms' cost of providing this benefit to $6 per worker per day. e. Repeat part (d), now making the further additional assumptions that: 50% of (potential) workers value health club membership at $6 per day; 50% of (potential) workers value health club membership at only $2 per day; and a worker's valuation of health club benefits is independent of the worker's reservation value of total daily compensation

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