Solved: How do workers sort themselves across firms, Microeconomics

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How do workers sort themselves across firms

Question: The following table describes the VMPs of 10 workers in a hypothetical labor market.

Worker VMP/hour

1       $10
2 $20
..
9       $90
10    $100

Further assume that Firm 1 pays a worker a piece rate and Firm 2 pays a time rate equal to $40/hour.

(a) How do workers sort themselves across firms?

(b) What happens if there is an increase in demand that increases the price of the firm's product by 10%?

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