The demand for labour by an industry is given by the curve L = 1200 -
10w, where L is the labour demanded per day and w is the wage rate. The supply curve is
given by L = 20w.
(a) What is the equilibrium wage rate and quantity of labour hired? (b) What is the
economic rent earned by workers?
(c) Suppose now that the only labour available is controlled by a monopolistic
labour union that wishes to maximize the rent earned by union members.
What will be the quantity of labour employed and the wage rate? How does
your answer compare with your answer to (a)? (Hint: The union’s marginal
revenue curve is given by L = 1200 - 10w)
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