Consider the conditions of work in perfume factories. In New York perfume factories, workers dislike the smell of perfume, while in California plants, workers appreciate the smell of perfume, provided that the level does not climb above S*. (If it rises above S*, they start to dislike it.) Suppose that there is no cost for firms to reduce or eliminate the smell of perfume in perfume factories, and assume that the workers have an alternative wage, W*.
Draw a diagram using isoprofit and indifference curves that depicts the situation. (The New York and California isoprofit curves are the same, but their indifference curves differ.) What level of perfume smell is there in the New York factories? In the California factories? Is there a wage differential between the California and New York workers?