Answer Happy

Question #2 (40 points) Part : Suppose the firm's labor demand curve is given by: w = 60 -0.03E 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 XE 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?
Part II: Now, suppose the union has the following utility function: w = (w - w*) X E where w*is the market competitive wage. The marginal utility of a wage increase is E and the marginal utility of employment is now w-w*. Suppose the competitive wage is $15 per hour. The firm's labor demand curve remains the same. (c) How many workers will be employed under the monopoly union contract? (d) What wage would a monopoly union demand?
Part III : Now, suppose that the market competitive wage increases to $24 per hour. The firm's labor demand curve remains the same and the union still has the same utility function: w = (w – w*) X E (e) How many workers will be employed under the monopoly union contract? (f) What wage would a monopoly union demand? (g) Compare your answers from Part I and Part II. Provide an explanation why they are different. Does it make sense? Provide a reason. (h) Compare your answers from Part II and Part III. What does happen to the wage demanded by the monopoly union when the market competitive wage increases? Does it make sense? Provide a reason.