For a firm in the widget industry, X = 100L - L2; where X is the quantity of widgets produced, and L is the number of labor hours hired. The demand for this firm's output is perfectly elastic at a price of $1 per widget. The firm can hire equally productive labor from two identifiable groups, 1 and 2. The supplies of group-1 and group-2 labor to the firm are w1/4 - 1 and 3w2/4 - 3 hours, where w1 and w2 denote the wage rates (in dollars per hour) offered by the firm to labor from these groups, respectively.
A. First suppose that the firm is required to set w1 = w2, and calculate the value of these wage rates in equilibrium.
B. Next suppose that the firm is allowed to set w1 w2, and calculate the values of these wage rates in equilibrium.