MICROECONOMICS >IA<
FD Edition
ISBN: 9781260511055
Author: McConnell
Publisher: MCG
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Chapter 17.A, Problem 1ARQ
To determine
Whether the given statement is true or false.
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Complete the following labor supply table for a firm hiring labor competitively: LO17.2
Show graphically the labor supply and marginal resource (labor) cost curves for this firm. Are the curves the same or different? If they are different, which one is higher?
Plot the labor demand data of review question 2 in Chapter 16 on the graph used in part a above. What are the equilibrium wage rate and level of employment?
Suppose the demand curve for union labor is given by the equation: L = 450 − 3W.Suppose the current wage is $20. Now suppose the union is successful in raising the wage of its members to $28. At the same time, it is able to shift the demand for labor out to: L = 510 − 3W.
Has the higher wage negotiated by the union reduced the employment opportunities of its members? If so, by how much?
c. Who has benefitted and who has lost as a result of this negotiation. Be specific and complete.
4 Suppose that a union and a firm operate in an efficient bargaining framework, with equal bargaining powers (so the term for bargaining power in the Nash product equals one). The union is assumed to have a utility function, specified net of its threat point, of the form U = (w − )L. The firm gains satisfaction from profits according to the utility function U(π) = π with the threat point, , equal to zero. (a) Derive the equation for the contract curve. (b) Show that the level of employment is determined independently of the equilibrium value of wages. (c) Show that changes in the degree of bargaining power affect wages but not employment.
Chapter 17 Solutions
MICROECONOMICS >IA<
Ch. 17.3 - Prob. 1QQCh. 17.3 - Prob. 2QQCh. 17.3 - Prob. 3QQCh. 17.3 - Prob. 4QQCh. 17.A - Prob. 1ADQCh. 17.A - Prob. 2ADQCh. 17.A - Prob. 3ADQCh. 17.A - Prob. 4ADQCh. 17.A - Prob. 1ARQCh. 17.A - Prob. 2ARQ
Ch. 17.A - Prob. 3ARQCh. 17.A - Prob. 4ARQCh. 17.A - Prob. 1APCh. 17.A - Prob. 2APCh. 17 - Prob. 1DQCh. 17 - Prob. 2DQCh. 17 - Prob. 3DQCh. 17 - Prob. 4DQCh. 17 - Prob. 5DQCh. 17 - Prob. 6DQCh. 17 - Prob. 7DQCh. 17 - Prob. 8DQCh. 17 - Prob. 9DQCh. 17 - Prob. 10DQCh. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 1PCh. 17 - Prob. 2PCh. 17 - Prob. 3PCh. 17 - Prob. 4PCh. 17 - Prob. 5P
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- Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent and each worker toils 40 hours per week for four weeks each month. LO17.6 Now consider the employer’s total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $6.20 per hour, what will the firm’s economic profit or loss be per acre? At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?arrow_forwardConsider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $62,000. Each additional worker costs $4,000 per month, while an additional tractor would also cost $4,000 per month. LO16.5 a. What is the marginal product of labor? The marginal product of capital? b. What is the ratio of the marginal product of labor to the price of labor (MPL/PL)? What is the ratio of the marginal product of capital to the price of capital (MPK/PK)? c. Is the firm using the least-costly combination of inputs? d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?arrow_forward. Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid $20 per hour for an eight-hour day. LO17.8 What is the current labor cost per car sold? Suppose that when the dealer raises the price of labor to $30 per hour the average number of cars sold by a salesperson increases to two per day. What is now the labor cost per car sold? By how much is it higher or lower than it was before? Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased? Suppose that if the wage is raised a second time to $40 per hour the number of cars sold rises to an average of 2.5 per day. What is now the labor cost per car sold? If the firm’s goal is to maximize the efficiency of its labor expenditures, which of the three hourly salary rates should it use: $20 per hour, $30 per hour, or $40 per hour?…arrow_forward
- Suppose the demand curve for union labor is given by the equation: L = 450 − 3W.Suppose the current wage is $20. Now suppose the union is successful in raising the wage of its members to $28. At the same time, it is able to shift the demand for labor out to: L = 510 − 3W. a. What was the original employment level? What is the new employment level? b. Has the higher wage negotiated by the union reduced the employment opportunities of its members? If so, by how much? c. Who has benefitted and who has lost as a result of this negotiation. Be specific and complete.arrow_forwardSuppose the economy consists of a union and a nonunion sector. The labor demand curve in each sector is given by L = 1,000,000 - 20w. The total (economywide) supply of labor is 1,000,000, and it does not depend upon the wage. All workers are equally skilled and equally suited for work in either sector. A monopoly union sets the wage at $30,000 in the union sector. What is the union wage gap? What is the effect of the union on the wage in the nonunion sector?arrow_forwardSuppose the marginal benefit of writing a contract is $100, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is: (LO3) a. MC(L) = 30 + 4L. b. MC(L) = 40 + 5L. c. What happens to the optimal contract length when the marginal cost of writing a contract declines?arrow_forward
- 4. Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equippedwith a shovel, a machete, and a chainsaw. Clearing one acrebrings in $1,000 in revenue. Each worker’s equipment coststhe worker’s employer $150 per month to rent and each workertoils 40 hours per week for four weeks each month. LO17.6 a. What is the marginal revenue product of hiring one lowskilled worker to clear woodland for one month?b. How much revenue per hour does each worker bring in?c. If the minimum wage were $6.20, would the revenue perhour in part b exceed the minimum wage? If so, by howmuch per hour?d. Now consider the employer’s total costs. These includethe equipment costs as well as a normal profit of $50 peracre. If the firm pays workers the minimum wage of$6.20 per hour, what will the firm’s economic profit orloss be per acre?e. At what value would the minimum wage have to be set sothat the firm would make zero economic profit fromemploying an…arrow_forwardConsider a firm that sells output at P = 5 and has a short-run production function:Q(L) = 20L − L^2. Its wage rate function is w = 40 + 2L. - Suppose the firm is a monopsonist, how much labor will it hire to maximize profits?How much wage will it pay?- Solve for the rate of monopsonistic exploitation.- If instead, the firm is operating in a perfectly competitive market, how much laborwill it hire to maximize profits? How much wage will it pay?arrow_forward32. Assuming labor is the only cost for production, a firm hires labor up to the point at which the wage equals (i) the value of the marginal product of labor, (ii) the marginal cost of an additional unit of output, (iii) output price multiplied by the marginal product of labor, for maximum profit. O (i) and (iii) only O (i) and (ii) only (ii) and (iii) only O (i), (ii), and (iii)arrow_forward
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