LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 10, Problem 11P
(a)
To determine
Identify the letter that represents the bargaining power of the union.
(b)
To determine
Identify the portion of contract curve that expect the bargained wage employment contract to occur.
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Students have asked these similar questions
c) The diagram below shows the supply, demand and marginal expense curve for labor in a
monopsony. Given this information, answer the following questions:
Wage
1)
ii)
111)
iv)
3
A
B
C
E
H
ME
S
Labor hours
per week
What quantity of labour will a monopsonist employ?
Which region represents the monopsonist total expense for labour?
If there were no monopsony, and write an expression using the letter above to
represent how much will the total expense of labour increase by.
Give a realistic example of a monopsony.
1, Wage determination in a monopsonistic labor market.
A) Draw the demand, supply, and marginal resource cost curves for labor for a monopsonist
operating in a perfectly competitive product market. Label your graph completely.
B) Where does the marginal resource curve lie in relationship to the supply curve? Explain
your answer.
C) On a second graph similar to part A of this question, label the equilibrium wage and
quantity if this firm were operating as firm in a competitive labor market (rather than a
monopsonistic labor market)
D) On a copy of the same graph, label the wage level the monopsonist would pay and the
quantity of labor the monopsonist would hire. Why does the monopsonist choose that wage
and quantity?
Economics
That is, the aggregate supply of hockey players is
given by w = 20 + 2L As demonstrated in the
solutions,
the aggregate demand for hockey players by the
six hockey teams is given by w =
We already solved for the perfectly competitive
outcome and the monopsony outcome. Now, we'll
consider the effects of a player's union.
1. First, assume that the players form a union, but
the six teams are in competition.
a) What is the equilibrium number of hockey
players? What is the equilibrium wage?
b) Team surplus? Player surplus?
2. Now, assume that the teams also form a league,
so we have a bilateral monopoly. The league can
easily coordinating the efforts of the six team
owners, and thus the league has more negotiating
power. In particular, the union's bargaining power
is only B = 15.
a) What is the equilibrium number of hockey
players?
b) What is the wage that gives players all the
surplus?
c) What is the wage that gives teams all the
surplus?
d) What is the negotiated equilibrium…
Chapter 10 Solutions
LABOR ECONOMICS
Ch. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prob. 11RQCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Major League Baseball players are not eligible for...Ch. 10 - Prob. 15P
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- E2 Problem 1: Labor Unions. The aggregate supply of cricket players is given byw = 75 + 2Land the aggregate demand for cricket players is given byw = 315 −4L 1. First assume that the players and the teams are all in perfect competition.a) Find the equilibrium number of players. Find the equilibrium wage.b) Find the league surplus and player surplus. 2. Next assume that the players form a union, but the teams are in perfect competition.a) Find the equilibrium number of players. Find the equilibrium wage.b) Find the league surplus and player surplus. 3. Now assume that the teams also form a league, creating a bilateral monopoly. Theplayers have a well-established union, and thus have slightly more power in negotiation.In particular, the union’s bargaining power is β = 3 5.a) Find the equilibrium number of players.b) What is the wage that gives players all the surplus?c) What is the wage that gives league all the surplus?d) Find the negotiated equilibrium wage.e) Find the league surplus…arrow_forward3) Suppose that the supply curve for the labour to a firm is given by L = 100W and the marginal expense of labour curve is given by MEL = L/50 where W is the (nominal) market wage. Suppose also that the firm’s demand for labour (marginal revenue product) curve is given by L = 1, 000 − 100MRPL. a) If the firm acts as a monopsonist, how many workers will it hire in order to maximise profits? What wage will it pay? How will this wage compare to the MRPL at this employment level? b) Assume now that the firm must hire its workers in a perfectly competitive labour market. How many workers will the firm hire now? What wage will it pay? c) What is the deadweight loss from the labour market for a monopsonist? Graph your results and show the DW Larrow_forwardPart I: Suppose the firm's labor demand curve is given by: w = 60 – 0.03E where w is the hourly wage andE is the level of employment. Suppose also that the union's utility function is given by: U = w x E The marginal utility of the wage for the union is E and the marginal utility of employment is w. (a) How many workers will be employed under a monopoly union contract? (b) What wage would a monopoly union demand?arrow_forward
- Question One Answer the following questions in words and diagrams: a) Discuss and illustrate union's objectives, constraint, and optimization. b) Explain the relationship between firm's labour demand curve and iso-profit curves. c) Derive and illustrate a bargaining range between union and firm. d) Define Pareto-efficiency and use it to derive contract curve.arrow_forwardDescribe how we calculate the percentage decline in national income resulting from the misallocation of labor in a model of monopoly unionism. What is the dollar value of this allocative inefficiency if unions and firms reach efficient contracts and the contract curve is vertical?arrow_forward3. A monopsonist's inverse demand for labor can be written as D-'(w) = VMP(E) = 40 – 0.005ED. Labor is supplied to the firm according to the inverse supply function S-(w) s(E) = w = 5+ 0.01E3. %3Darrow_forward
- lll ll Question 3: In 2018 steel workers in America received the biggest wage increase in six years after long negotiations with the steel companies. Source: Singh, Rajesh Kumar (2018). See link: https://www.reuters.com/article/us-u-s-steel-union-contract- exclusive/exclusive-u-s-steel-workers-set-to-get-biggest-pay- raise-in-years-sources-idUSKCN]MQ2Q3 At the same time the price of aluminium, which is a substitute for steel, has seen a price drop in 2018 selling at below US$2000 a tonne. This is mainly due to increased supply of aluminium from China. Source: Djukanovic, Goran (2018). See link: https://aluminiuminsider.com/aluminium-year-in-review-and- what-to-expect-in-2019/ What are the effects on the equilibrium price and quantity of steel if the wages of steelworkers rise and, simultaneously, the price of aluminium falls? Draw a diagram to support your answer.arrow_forwardFour (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_forwardIf the bargaining power of the workers increases due to the unions becoming stronger: A) The wage setting curve shifts downward B) The price setting curve shifts downward C) The price setting curve shifts upward D) The wage setting curve shifts upwardarrow_forward
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