Question 2 (12 marks) The Pure Fizz is a sole employer in a small town located in Northern British Columbia. It produces a soft drink from spring water found only in the region. The only other variable input is labour. As such, the short run production function can be described as:Q(L) = 40L, where L is the number of full-time workers. The labour supply curve facing Pure Fizz is given by w(L) = 20 + 2L . The market demand for its product is given by p(Q) Q 400 1 = 8 , where Q is the quantity demanded per day.

a) If Pure Fizz wishes to maximize its profit, how many full-time workers should it hire at what wage rate?

b) The local government is considering imposing a minimum wage on this labour market. At what level should the minimum wage be set to realize the efficient outcome? How many workers would be hired?

c) Illustrate your answers in part b) and part c). Show clearly how the imposition of the minimum wage would affect Pure Fizz's hiring decision.

d) If implemented, would the minimum wage you found in part b) be beneficial for consumers who purchase Pure Fizz's product? Explain your answer (no calculation is required).