At the competitive wage of $20 per hour, firms A and B both hire 5,000 workers (each working 2,000 hours per year). The elasticity of demand is -2.5 and -0.75 at firms A and B,respectively. Workers at both firms then unionize and negotiate a 12 percent wage increase. (Assume for parts A and B that the firm lays people off rather than cutting anyone’s hours below 2,000.)
A. (2 pts.) What is the employment effect at firm A? How has total worker income changed?
B. (2 pts.) What is the employment effect at firm B? How has total worker income
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