Question a, b, and c:

Consider a labor market in which there are 10 firms and 10 workers. Each firm can hire only one of these workers. Each firm has a maximum it would be willing to pay the worker. It would like to hire its worker for as far below this maximum as possible, but if no other options exist, it will hire a worker at a wage equal to its maximum willingness to pay value. The maximum wage each firm is willing to pay is shown in the Table. Suppose that each worker in this market can work for only one firm. Each worker has a minimum wage that will just be acceptable. Any offer below this minimum will be rejected and the worker will not participate in the market. Each worker would like to be hired at a wage as much above the minimum acceptable wage as possible, but if no other options exist, will work at a wage just equal to this minimum. Maximum Minimum Firm Person Acceptable Acceptable # # Wage ($) Wage ($) 1 520 1 240 2 500 2 260 3 480 3 280 4 460 4 300 5 440 5 320 6 420 6 340 7 400 7 360 8 380 8 380 9 360 9 400 10 340 10 420a. Suppose that the first 8 workers are hired by the first 8 firms and each worker is paid a wage of $380. Discuss why this is a Pareto efficient outcome. b. Concerned that workers will be exploited by firms, suppose that the government passes a law that prohibits deals below $480; that is, individuals and firms must contract for work at $480 or above. What will be the consequences of this law? Who loses because of this law? c. Suppose that the maximum willingness to pay values in Table represent values for a single firm that is the only buyer of labor. Also suppose that this firm is aware of each worker's minimum acceptable wage. In this situation, the firm could offer the first worker a wage of $240, and since the only other option would be not to work at all, the worker would accept. Similarly, the second worker could be offered a wage of $260 (the first would still earn $240) and he would accept. How many workers would be hired under this pay scheme