Reference no: EM132586903

Two companies, West Timber and Musk Logging, are both activity in the lumber industry. The lumber industry involves some amount of danger for workers, and the two companies face different isoprofit curves with respect to the trade-off between wages and risk. Since the logging industry is competitive, both companies operate at 0 profit. West Timber has a zero-profit isoprofit curve of w = 4 + 0.5R, where w is the wage offered by West Timber at level of risk R. Likewise, the zero-profit isoprofit curve at Musk Logging is w = 3 + 0.75R.

(a) Draw the zero-prot lines for West Timber and Musk Logging.

(b) At what level of risk can the firms offers the same wage, and what wage is offered there?

(c) Which firm will be preferred by workers who prefer low risk levels, and which rm will be preferred by workers who are not bothered as much by risk levels. Add the indifference curves for two such workers to your diagram from part (a).