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Unformatted text preview: Economics 151a Spring 2008 Homework 3 11-1. Suppose the firm’s labor demand curve is given by: w = 20 - 0.01 E , where w is the hourly wage and E is the level of employment. Suppose also that the union’s utility function is given by U = w × E . It is easy to show that the marginal utility of the wage for the union is E and the marginal utility of employment is w . What wage would a monopoly union demand? How many workers will be employed under the union contract? 11-2. Suppose the union in problem 1 has a different utility function. In particular, its utility function is given by: U = ( w- w * ) × E where w * is the competitive wage. The marginal utility of a wage increase is still E , but the marginal utility of employment is now w – w * . Suppose the competitive wage is $8 per hour. What wage would a monopoly union demand? How many workers will be employed under the union contract? Contrast your answers to those in problem 1. Can you explain why they are different?...
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This note was uploaded on 10/15/2009 for the course ECON 151A taught by Professor Miller during the Spring '06 term at UC Davis.
- Spring '06