LABOR ECONOMICS (LL+ACCESS)
8th Edition
ISBN: 9781264909339
Author: BORJAS
Publisher: MCG
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Chapter 9, Problem 13P
To determine
Determine the number of blacks hired as a function of the wage ratio.
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Assume that the labor supply curve is S(w)=2w-20 and the demand curve is D(w)=40-w. In case of a non-discriminating monopsony, the marginal cost is
MCN(W)=w-10. Note that MCN is the marginal cost in terms of workers. What is the change in the number of workers in the non-discriminating monopsony
compared to perfect discriminating monopsony?
Multiple Choice
O
O
5 decrease in workers
10 decrease in workers
5 increase in workers
10 increase in workers
In a purely competitive labor market (a), market labor supply S and market labor demand D determine the equilibrium wage rate Wc and the equilibrium number of workers Qc . Each individual competitive firm (b) takes this competitive wage Wc as given. Thus, the individual firm’s labor supply curve s = MRC is perfectly elastic at the going wage Wc . Its labor demand curve, d, is its MRP curve (here labeled mrp). The firm maximizes its profit by hiring workers up to where MRP = MRC. Area 0abc represents both the firm’s total revenue and its total cost. The green area is its total wage cost; the blue area is its nonlabor costs, including a normal profit—that is, the firm’s payments to the suppliers of land, capital, and entrepreneurship. This firm’s labor demand curve d in graph (b) slopes downward because: a. the law of diminishing marginal utility applies. b. the law of diminishing returns applies. c. the firm must lower its price to sell additional units of its product. d. the firm is a…
Imagine a type of discrimination where firms act as if they pay wf+df when they hire a female worker and wm when they hire a male worker. Where df is a discrimination coefficient.
A) If female and male workers were the only inputs, what is the profit function for the firm? What is the firms profit maximizing demand for each type of labour?
B) If the marginal product of male and female workers is the same, and if df = .1, what is the ratio of male to female wages? What does it mean to have a discrimination coefficient of .1? Carefully explain what it means.
Chapter 9 Solutions
LABOR ECONOMICS (LL+ACCESS)
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- In a purely competitive labor market (a), market labor supply S and market labor demand D determine the equilibrium wage rate Wc and the equilibrium number of workers Qc . Each individual competitive firm (b) takes this competitive wage Wc as given. Thus, the individual firm’s labor supply curve s = MRC is perfectly elastic at the going wage Wc . Its labor demand curve, d, is its MRP curve (here labeled mrp). The firm maximizes its profit by hiring workers up to where MRP = MRC. Area 0abc represents both the firm’s total revenue and its total cost. The green area is its total wage cost; the blue area is its nonlabor costs, including a normal profit—that is, the firm’s payments to the suppliers of land, capital, and entrepreneurship. A rightward shift of the labor supply curve in graph (a) would shift curve: a. d = mrp leftward in graph (b). b. d = mrp rightward in graph (b). c. s = MRC upward in graph (b). d. s = MRC downward in graph (b).arrow_forwardIn a purely competitive labor market (a), market labor supply S and market labor demand D determine the equilibrium wage rate Wc and the equilibrium number of workers Qc . Each individual competitive firm (b) takes this competitive wage Wc as given. Thus, the individual firm’s labor supply curve s = MRC is perfectly elastic at the going wage Wc . Its labor demand curve, d, is its MRP curve (here labeled mrp). The firm maximizes its profit by hiring workers up to where MRP = MRC. Area 0abc represents both the firm’s total revenue and its total cost. The green area is its total wage cost; the blue area is its nonlabor costs, including a normal profit—that is, the firm’s payments to the suppliers of land, capital, and entrepreneurship. The supply-of-labor curve S slopes upward in graph (a) because: a. the law of diminishing marginal utility applies. b. the law of diminishing returns applies. c. workers can afford to “buy” more leisure when the wage rate increases. d. higher wages are…arrow_forwardThe inverse labour demand curve of a monopsonist employer is W = 42,500 – 118L, where Wis the annual salary and Lis the number of workers hired. The labor supply is given by W= 9,600 + 100L. %3D (a) The marginal expenditure equation is ME= . Do not include a comma in your answer. Please use capital letters (e.g. L not I) (b) To the nearest integer, the monopsonist would hire 数字 workers and, given that number of workers, the salary they would pay is, rounded to 2 decimal places (e.g. 4.12) 数字 . Do not include a comma in your answer.arrow_forward
- Each employer faces competitive weekly wages of $2,000 for whites and $1,400 for blacks. Suppose employers undervalue the efforts/skills of blacks in the production process. In particular, every firm is associated with a discrimination coefficient, d (0 ≤ d ≤ 1). In particular, although a firm’s actual production function is Q = 10(EW + EB), the firm manager acts as if its production function is Q = 10EW + 10(1 - d ) EB . Every firm sells its output at a constant price of $240 per unit up to a weekly total of 150 units of output. No firm can sell more than 150 units of output without reducing its price to $0.a. What is the value of the marginal product of each white worker?b. What is the value of the marginal product of each black worker?c. Describe the employment decision made by firms for which d = 0.2 and d = 0.8 respectively.d. For what value(s) of d is a firm willing to hire blacks and whites?arrow_forwardA firm produces output via the function: Q = L - (L2/800), where Q is the output per week and L is the number of labor hours per week. The firm’s additional cost of hiring an extra hour of labor is about $30 per hour (wage plus fringe benefits). The firm faces the fixed selling price, P = $50. How much labor should the firm employ?arrow_forwardExplain if the statement is true, false or uncertain: If the demand curve (marginal revenue product) of labor is given by w = 100 - L and the supply curve by w = L, a monoposonist will hire half the quantity of labor compared to a perfectly competitive employer.arrow_forward
- Four (TYPE I) firms sell Product X in competitive markets at a price of 10. They each operate with the production function: x = 100L – L². Another firm with monopoly power (TYPE II) sells faces demand curve P = 160 – Y and has production function Y = 5L. All five firms hire as wage-takers in the same market where labour supply is w = 2L. Illustrate and quantify the equilibrium wage and the number of workers hired by each firm. а. Solve for the equilibrium wage and employment by each firm. b. Provide a 3-panel diagram. 6.arrow_forwardSuppose the discrimination coefficient increases as the firm employs more black workers. In particular, suppose the discrimination coefficient is d = 0.01 EB where EB is the number of blacks hired by the firm so that each employer facing competitive wages of wW for whites and wB for blacks acts as if she faces competitive wages of wW for whites and wB(1 + d) for blacks. As usual, assume the labor market is competitive so that the firm faces wages of wB and wW. Lastly, assume that the firm must employ 200 workers. Define the wage ratio to be wW / wB and do the following:a. Solve for the number of blacks hired as a function of the wage ratio. Graph the number of blacks hired against the wage ratio.b. Solve for the number of whites hired as a function of the wage ratio. Graph the number of whites hired ( x-axis) against the wage ratio ( y-axis).arrow_forwardConsider a firm that faces a constant per unit price of $1,200 for its output. The firm hires workers, E, from a union at a daily wage of w, to produce output, q, w here q = 2E1/2 Given the production function, the marginal product of labor is 1/E1/2 . There are 225 workers in the union. Any union worker who does not work for the firm can find a nonunion job paying $96 per day. a. What is the firm’s labor demand function? b. If the firm is allowed to specify w and the union is then allowed to provide as many workers as it wants (up to 225) at the daily wage of w, what wage will the firm set? How many workers will the union provide? How much output will be produced? How much profit will the firm earn? What is the total income of the 225 union workers?arrow_forward
- Suppose the value of marginal product of labor in the steel industry (in dollars per year) is given by VMPE = 100,000 - E, where E is the number of steel workers. The competitive wage for the workers with the skills needed in steel production is $30,000 a year, but the industry is unionized so that steel workers earn $35,000 a year. The steelworkers’ union is a monopoly union. What is the efficiency cost of the union contract in this industry?arrow_forwardAssume labor market demand is given by: lD = 10 – w and labor market supply by: lS = w – 2. Suppose that a union has a monopoly in the supply of labor. Suppose also that the goal it has decided to pursue is to maximize the total wage bill. In this case, the quantity of labor it will offer is?arrow_forwardA monopsony company has 5 employees each earning $20 an hour. The company decided to hire two a new employees at a rate of $25 an hour. The Marginal Labour Cost for employee number 6 is: $25 $5 $20 $125 $150arrow_forward
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