Problem 3 Suppose a small rm hires two types of labor: bluecollar workers (El) who have to be paid a salary on = 10, and whitecollar workers (E3) who have to be paid a salary 'lg = 20. The rm's production technology is I? = flEh Ea) = 111031) + 2111032) Assume that the rm takes the output price (p = 100) as given. 3.1 Write down the rm's maximization problem, and characterize the optimal labor demands (EI and E3) as functions of the parameters (p, 11:1 and tag). How many workers of each type does the rm hire? For simplicity, just focus on solving the rst order condition(s) and ignore the other optimality conditions. 3.2 Now suppose that the minimum wage increases from 725 dollars to 12.5 dollars. Assuming that this does not a'ect the wage of white collar workers nor the output price, how would the labor demand for each type of worker change? 3.3 How would your answer to the previous subquestion change if you took into account that the minimum wage increase affects all rms in the industry, and not just the one small rm we are studying? Explain your reasoning. 3.4 (Bonus question) Show that for this particular type of production function, labor demand for either type of worker is neither elastic nor inelastic