3. (50 points) Minimum Wage Setting Put on your hat as a policy designer. You (the government) control minimum wage policies in two Isolated markets, A and B, which have the following characteristics. Two isolated labor markets (A and B ) have the following structures: Market A Demand: La = ataAW , alO (2) Market B Demand: LO = aB+aBW , aB 0 (4 Econometricians have been active and they estimate the parameters of the two markets: do = 100, af = -2, BA = 0, BA = 3 ap = 50, a1 = -3, Bo=10, BP = 2 A. (20 points) What minimum wage would you set in each market? Be as specific as you can be, noting the criteria you used to determine the minimum in each market un B. Imagine that, courtesy of the government, a high speed train ("the train to nowhere") is built to link the two rural markets, dropping transport costs to zero between the two localities. 1. (10 points) Derive the formulas for wages and employment in the single labor market created by this innovation.B. Imagine that, courtesy of the government, a high speed train ("the train to nowhere") is built to link the two rural markets, dropping transport costs to zero between the two localities. 1. (10 points) Derive the formulas for wages and employment in the single labor market created by this innovation. 6 2. (15 points) What minimum wage would you set in this unified market? Again clearly spell out your criterion for your choice.7 3. (5 points) Assume that residents of the area get priority for any jobs available in that area. How many residents of B will find work in A, how many in B? E 8