Question 4 (a) In the explanation of labor matching models, I assumed without explanation that firms will always hire two adjacent workers. Why does this make sense? Explain briefly. [Draw out a line with three workers. Why wouldnt the firm want to hire the two workers who are non-adjacent?]

(b) A firm is more likely to find closely matching workers in a big city. What about cities with the same sized labor force but different skill distributions? Look at City A and City B in the figure. If firms have to train two workers, and training costs are equal to the distance between the worker and the firm, which city will a firm prefer to locate in?

City A 0 1 1/3 2/3 City B 0 1 0.15 0.3 0.7 0.85 Question 4 (a) In the explanation of labor matching models, I assumed without explanation that firms will always hire two adjacent workers. Why does this make sense? Explain briefly. [Draw out a line with three workers. Why wouldn't the firm want to hire the two workers who are non-adjacent?] (b) A firm is more likely to find closely matching workers in a big city. What about cities with the same sized labor force but different skill distributions? Look at City A and City B in the figure. If firms have to train two workers, and training costs are equal to the distance between the worker and the firm, which city will a firm prefer to locate in