A labor market consists of 20 workers that get disutility from dirty jobs. These workers can choose to work at one of two firms. At Firm 1, demand for labor is perfectly inelastic, meaning it will pay any wage to fill its 10 dirty jobs (i.e., =1). At Firm 0, jobs are clean (i.e., =0), and the firm will hire everyone willing to work at the going wage (demand is perfectly elastic).

c. Firm 1 expands. It now demands 11 workers elastically. What wage will be paid at Firm 0? What wage will be paid at Firm 1? Briefly explain your reasoning.

d. One of the workers with a reservation price of $20 moves to a different city. The worker is replaced by a much more risk-averse worker who has a reservation price of $1,000/hour. What happens to the average reservation price in the labor market? What happens to the wages offered by Firm 0 and Firm 1? Explain your findings.