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Problem Set 5

# Problem Set 5 - Labor Demand III(Chapter 4 March 8 2010 1...

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Labor Demand - III (Chapter 4) March 8, 2010 1. Union A wants to represent workers in a firm that would hire 20 , 000 workers if the wage rate is \$12 and would hire 10 , 000 workers if the wage rate is \$15. Union B wants to represent workers in a firm that would hire 30 , 000 workers if the wage rate is \$20 and would hire 33 , 000 workers if the wage rate is \$15. (a) Which union faces a more elastic demand curve? (b) Which union will be more successful in increasing the total income (wages times person hours) of its membership? 2. Suppose a purchases labor in a competitive labor market and sells its product in a competitive product market. The firm’s elasticity of demand for labor is - 0 . 4. Suppose the wage increases by 5%. (a) What will happen to the number of workers hired by the firm? (b) What will happen to the marginal productivity of the last worker hired by the firm? 3. In a particular industry, labor supply is E s = 10+ w and labor demand is E d = 40 - 4 w , where E is the level of employment and w is the hourly wage.

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