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Using the same information as in Exercise 8, suppose now that the only labor available is controlled by a monopolistic labor union that wishes to maximize the rent earned by union members. What will be the quantity of labor employed and the wage rate? How does your answer compare with your answer to Exercise 8? Discuss. (Hint: The union’s marginal revenue curve is given by MR = 120 - 0.2L.)

Short Answer

Expert verified

The quantity of labor employed will be 480 laborers, and the wage rate will be $72. The monopolistic wage rate is higher, and the labor employed will be less than the competitive market.

Step by step solution

01

Step 1. Explanation

The labor demand curve is L = 1200 -10w; thus, the inverse labor demand curve will be w = 120 – 0.1L. The labor supply curve is L = 20w, i.e., w = 0.05L. The labor marginal revenue curve will be

MR = 12 – 0.2L. At equilibrium, the marginal revenue curve is equal to the labor supply curve.

MR = S120 - 0.2L = 0.05L0.25L = 120L = 480w = 120 - 0.1L= 120 - 0.1480= 120 - 48= $ 72

The monopolistic labor demand will be 480 laborers at the wage rate of $72.

The monopolistic wage rate is higher than the competitive market (Example 8), and the labor employed will be lesser than the competitive market (Example 8). The monopolistic labor employed is lower than the competitive market because the competitive market operates at the socially efficient level.​​​​

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Most popular questions from this chapter

Suppose there are two groups of workers, unionized and nonunionized. Congress passes a law that requires all workers to join the union. What do you expect to happen to the wage rates of formerly nonunionized workers? Of those workers who were originally unionized? What have you assumed about the union’s behavior?

The demands for the factors of production listed below have increased. What can you conclude about changes in the demands for the related consumer goods? If demands for the consumer goods remain unchanged, what other explanation is there for an increase in derived demands for these items?

  1. Computer memory chips

  2. Jet fuel for passenger planes

  3. Paper used for newsprint

  4. Aluminum used for beverage cans

Using your knowledge of marginal revenue product, explain the following:

  1. A famous tennis star is paid \(200,000 for appearing in a 30-second television commercial. The actor who plays his doubles partner is paid \)500.

  2. The president of an ailing savings and loan is paid not to stay in his job for the last two years of his contract.

  3. A jumbo jet carrying 400 passengers is priced higher than a 250-passenger model even though both aircraft cost the same to manufacture.

Question: Suppose there are two groups of workers, unionized and nonunionized. Congress passes a law that requires all workers to join the union. What do you expect to happen to the wage rates of formerly nonunionized workers? Of those workers who were originally unionized? What have you assumed about the union’s behavior?

Question: Using your knowledge of marginal revenue product, explain the following:

  1. A famous tennis star is paid \(200,000 for appearing in a 30-second television commercial. The actor who plays his doubles partner is paid \)500.

  2. The president of an ailing savings and loan is paid not to stay in his job for the last two years of his contract.

  3. A jumbo jet carrying 400 passengers is priced higher than a 250-passenger model even though both aircraft cost the same to manufacture.

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