The produces output y combining immigrant labour M and native labour N. The wage of immigrant workers is wN = 4 and the wage of native workers is wM = 2. The price of the output is p = 100.
- (a) The manager of the firm discriminates against immigrants, so he always hires natives 4 times in proportion to the number of immigrants. Calculate how much profits the firm is losing due to the discriminating manager. Illustrate your answer with a diagram with Isoquants and Isocosts and provide intuition for your answer.
- (b) Assume now that the manager does not discriminate. The firm is the only employer in the industry. Immigrants have supply M = 5wM and native workers have labour supply N = 10wN . Find the optimal decision of the firm and calculate how many immigrants it hires.
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